This is a Microsoft Excel and VBA based application designed and developed for use by the mid-office staff of the Foreign Exchange trading desk.

For a regional U.S. bank Prescio has developed a Value at Risk (VaR) application for its Foreign Exchange (FX) trading desk. The application produces 1-day and 10-day VaR estimates based on the overnight portfolio held by the bank. The VaR application is generalized to handle spot, forward, and FX option positions in 22 currency pairs. The application is based on a historical VaR model employing a parameterized distribution for the returns. The application allows the employment of either a Normal distribution or a t-distribution with user specified degrees of freedom. The application optionally employs variance-covariance methodology to consider the correlation of spot prices and deposit interest rates when estimating the Forward VaR. The application produces four estimates for the option VaR, employing delta-normal, delta-gamma, delta-gamma-vega, and delta-gamma-vega-theta models for each of the estimates, with the end-user selecting which of the four models to employ in their final estimates.

The application is in Excel for ease of use by office staff and has a confirmatory R model.For each day’s VaR estimates, the end of day spot positions, forward positions, and option positions are entered through an automated interface. Daily end-of-day market updates are also entered through an automated interface. The application produces the VaR estimates, along with a VaR report for management, and supplementary VaR reports for additional analysis.