VaR of future foreign currency income stream
VaR of future foreign currency income stream
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Rasmus Faber · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Rasmus Faber
Original post: https://quant.stackexchange.com/questions/36823
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
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Assume I have a series of future incomes in a single foreign currency.
How do I calculate the total VaR for this forex risk using the volatility method?
My first thought was that I could simply add up the VaR for each future income, i.e. for receiving $V_1, V_2, ..., V_n$ at times $T_1, T_2, ..., T_n$ the 95% VaR would be:
$$\operatorname{VaR}_{0.95} = -1.65\sum_i{\sigma V_i \sqrt{T_i}}$$
but is this correct?
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