Date of Publication

2017

Document Type

Master's Thesis

Degree Name

Master of Science in Financial Engineering

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Tomas S. Tiu

Defense Panel Member

Patrick D. Caoile
Patricia P. Benito
Tyron Panzer L. Chan Pao
Brian C. Gozun

Abstract/Summary

Unexpected volatility in the foreign exchange (FX) market inspired this research to calculate the market risk exposure of PHP/USD. Given the different factors that impact the currency pairs fluctuation from the local and global arena, FX traders position is vulnerable to losses. The two most common risk measures are value at risk and expected shortfall (ES). This paper focused on ES due to its coherence and functionality to work under stressed scenarios. Following Extreme Value Theory, peak over threshold (PoT) and block maxima (BM) were implemented to gather the set of observations subject to study. Historical approach was also calculated for comparison with the extreme value approach (EVA). Results showed that risk estimates under EVA are higher than those under the historical method. Moreover, comparing EVA methodologies, PoT has a more reliable estimate than BM as the latter produced unusual figures due to loss of information. Back testing the model, Traffic Light Approach was used to test the accuracy which then falls under the green zone or the safe space. This implies that, for a year, there were no exceedance's or losses beyond the risk estimate.

Abstract Format

html

Language

English

Format

Electronic

Accession Number

CDTG007168

Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Keywords

Foreign exchange rates--Philippines

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