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You can calculate the net present value for exposure positions in Exposure Management 2.0.

To calculate the net present value for commodity exposures, you can assign commodity curves in the evaluation type so that the system can then apply them in price determination.

You can run value-at-risk analyses for operative exposures. By way of enhancement to the net present value analysis, the value-at-risk analysis takes into account the uncertainty of future market developments and also enables risks to be assessed consistently.

Prerequisites

See also: Integration of Exposure Positions in Market Risk Analysis

Features

Commodity Exposures

  • Net Present Value of Commodity Exposures with a Commodity Curve

    • A commodity curve is stored in the evaluation type / valuation rule.

    • The system reads the futures/forward price of the commodity from the market data for the commodity. For this, the system applies the exchange where the commodity is quoted.

    • To calculate net present values, the system applies the commodity exposure approach category as follows:

      • Commodity exposure approach category 0 Without Prices

        For this approach category, the exposure position only contains data regarding the quantity of the commodity and no data regarding the prices agreed upon.

        NPV = Q*S*DF

        whereby

        • Q = commodity volume (quantity in units of measure)

        • S = commodity future / forward rate (market rate) per unit and currency for the expiry date of the commodity exposure

        • DF = discount factor (resulting from the yield curve stored in the evaluation type for the buying currency of the commodity for the period until expiry of the commodity exposure).

      • Commodity exposure approach categories 2 Fixed Prices, 3 Variable Prices, and 4 Fixed and Variable Prices

        The exposure positions for these approach categories contain the quantity data and the data for price determination, enabling the net present value to be calculated as follows:

        This graphic is explained in the accompanying text.

        Step 3: Determination of the total NPV as a total of both individual NPVs:

        NPV (total) = NPV (price conditions) + NPV (delivery)

  • Net Present Value of Commodity Exposures Without a Commodity Curve

    • No commodity curve is stored in the evaluation type / valuation rule.

    • With this setting, net present values can only be calculated for commodity exposures with the commodity exposure approach category 0 Without Prices.

    • The net present value is calculated as follows:

      NPV = Q*S

      whereby

      • Q = commodity volume (quantity in units of measure)

      • S = commodity spot price: The spot price of the commodity is taken from the market data for the commodity. The system applies the exchange on which the commodity is quoted.

Foreign Exchange Exposures

The net present value of a foreign exchange exposure is calculated as follows:

NPV = foreign currency amount * DF

whereby

DF = discount factor resulting from the yield curve of the foreign currency. Discounting occurs from the due date to the horizon.

Within a foreign exchange exposure position, the individual partial amounts may be due on different dates (within the planning period). In such cases, the total NPV of the exposure position is calculated by adding together the individual NPVs on the different due dates.