Use

The market price calculator for spot stock transactions, forward stock transactions and stock option transactions aggregated on an index calculates current market values and future market values and time values (the future point in time is the horizon).

When using the variance/covariance approach for value at risk (VaR), you need the correlation between the individual risk factors. These are not always available for stock. Also, all historical rates of all stock classes in the position are not always maintained completely. In these cases, it is sensible to make use of the correlation of the stock to a common index, rather than the correlation between the individual stocks. This makes the index a risk factor and each stock class has a risk item in the index. The set up of the item in the index is based on the Capital Asset Pricing Model (CAPM).

To determine the value at risk in a stock class, the spot stock transactions, forward stock transactions and stock option transactions that need to be aggregated are set up in the index. For this, the beta-weighted item in the stock is set up as an item in the index. With this approach, you can depict items from forward stock transactions and stock options, as well as stock positions.

Integration / Calculation Basis

When valuing the transactions, you need to have the class data and the current price for the stock class for the evaluation date. The assigned ID number is the number of the security class.

In order to value the forward stock transactions and options on stocks, you need the transaction data, and alternatively a par coupon or zero coupon yield curve in the transaction currency for the valuation date.

You also need a price volatility curve relating to the option term.

If the display currency is different from the transaction currency, the relevant currency rate is needed. If the horizon comes after the evaluation date and the transaction currency differs from the display currency, you need to enter a par or zero coupon yield curve to calculate a forward transaction on the horizon.

Scope of Functions / Valuation

First a check is made to see if the stock class in question has been defined as a potential risk factor.

If this stock class has been defined as a potential risk factor, then there is no aggregation.

If this stock class has not been defined as a potential risk factor, then a check is made to see if it has been assigned to an index. This assignment is made in Customizing in an evaluation type.

If this stock class has been assigned to an index, then the spot stock position, the forward stock transactions and the stock option transactions based on this stock class are depicted on the specified index.

If this stock class has not been assigned to an index, then a check is made to see if a default index has been defined.

If a default index has been defined, then the spot stock transactions and derivative stock transactions are depicted on the default index.

First you calculate the net present value item of the spot stock position for the appropriate stock class from the number of units and the spot stock price (item _spot ).

You determine the net present value of forward stock transactions (item _forward ) and stock options (item _option ) for the stock class concerned as described above. In addition, you determine the option delta.

The price change equivalent (pce) item in the underlying transaction of the option (position _{opt pce} ) results from multiplying the current option price with the option delta.

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Then the net present value items are summarized and valued with the beta factor.

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Also, you determine the net present value of the transactions aggregated on the index.

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Net present value price risks arising from the transactions depicted on indexes are the result of the price change of each index. These are calculated by adding the item multiplied by the related index changeI of the aggregated transactions in the index and the net present value of the transactions depicted on the index.

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