Forex options traders count the cost of stressed VAR

Costing stressed VAR

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Foreign exchange options can no longer escape the past. Under old trading book rules, capital was calculated using the standard value-at-risk approach, in which periods of currency volatility would rapidly fall out of the historical data used to estimate worst-case losses. That changes under Basel 2.5, which uses a stressed VAR measure to generate an additional capital charge based on a period of historic market turmoil. Users of emerging market forex options – and more exotic products – could

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