19 Pages Posted: 29 Aug 2005
Date Written: August 23, 2005
In this document we study the risks of an FX options portfolio; we will focus on which, we think, are the main sources of risk. Besides, we analyze also the relationships between the underlying assets' price and the (possibly stochastic) volatility. Some practical suggestions will be proposed to calculate the total (combined asset's price-volatility) VAR of a portfolio, taking into account the smile and the skew of the volatility matrix by means of an Uncertain Volatility Model.
Keywords: FX, option, stochastic volatility, uncertain volatiltiy, smile, VAR
JEL Classification: G13
Suggested Citation: Suggested Citation
Castagna, Antonio, The Main Risks of an FX Options Portfolio, Some Untimely Considerations of an Option Trader (August 23, 2005). Available at SSRN: https://ssrn.com/abstract=788645 or http://dx.doi.org/10.2139/ssrn.788645