Forex options traders count the cost of stressed VAR
Costing stressed VAR
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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