Treasury Management Model with Foreign Exchange Exposure

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1、CentrefortheAnalysisofRiskandOptimisationModellingApplicationsCentrefortheAnalysisofRiskand
      Optimisation       ModellingApplicationsAmulti-disciplinaryresearchcentrefocussedonTECHNICALREPORT

2、understanding,modelling,quantification,managementandcontrolofRISKTreasuryManagementModelwithForeignExchangeExposureKonstantinVolosov,GautamMitra,FabioSpagnolo,CormacLucas.CARISMADate:04-3-2004Version1.0DepartmentofMathematicalSciencesandDepartmentofEconomicsandFinanceBrunelUniversity,Uxbridge

3、,Middlesex,UB83PHtimisatioTreasuryManagementModelwithCurrencyExposureAbstractInthispaperweformulateamodelforforeignexchangeexposuremanagementand(international)cashmanagementtakingintoconsiderationrandomfluctuationsofexchangerates.Avectorerrorcorrectionmodel(VECM)isusedtopredicttherandombehavi

4、ouroftheforwardaswellasspotratesconnectingdollarandsterling.Atwo-stagestochasticprogramming(TWOSP)decisionmodelisformulatedusingtheserandomparametervalues.Thismodelcomputescurrencyhedgingstrategies,whichproviderollingdecisionsofhowmuchforwardcontractsshouldbeboughtandhowmuchshouldbeliquidated

5、.Themodeldecisionsareinvestigatedthroughexpostsimulationandbacktestinginwhichvalueatrisk(VaR)foralternativedecisionsarecomputed.Theinvestigation(a)showsthatthereisaconsiderableimprovementto“spotonly”strategy,(b)providesinsightintohowthesedecisionsaremadeand(c)alsovalidatestheperformanceofthis

6、model.2TreasuryManagementModelwithCurrencyExposureTableofContentsAbstract.............................................................................................................................21IntroductionandBackground....................................................................

7、...........42ModellingStochasticProcesses...........................................................................92.1TheExchangeRates:AModelofCointegrationbetweenSpotsandForwards.92.2ComparingAlternativeModelsandModelValidation............