Cash Flow at Risk (CFaR)

Cash Flow at Risk is a risk measure that provides information about the value of potential defaults in cash flow in future periods and about the probability with which those defaults will not exceed that value.

This risk measure is of interest to you if you use a long-term time horizon for your cash flow.

The cash flow CF_j of the future period j (j = 1,...,n) is a function of the market risk factors rf_i, such as exchange rates, interest rates, or commodity prices.

CF_j = CF_j (rf₁,..., rf_n)

Note Note

Currently, the system supports only the risk factor "Exchange Rate".

End of the note.

This graphic is explained in the accompanying text.

Cash Flow at Risk can be calculated for individual periods as well as aggregated across all periods.

Note Note

Cash Flow at Risk is a non-additive key figure. The system first determines the relevant cash flow at each calculation level and then calculates the Cash Flow at Risk for that cash flow.

End of the note.

Integration

If you have activated the automatic integration of financial objects, Cash Flow at Risk can be calculated for the following cash flows:

Cash flows from forex exposure positions in Exposure Management 2.0
Cash flows from generic transactions
Cash flows of a financial transaction in the Transaction Manager with fixed flows (such as forward exchange transactions)

Note Note

It is not possible to consider financial transactions with variable flows that are dependent on the development of reference interest rates or commodity prices.
Options cannot be considered either.

End of the note.

Prerequisites

To be able to use the CFaR functions, you need to activate the business function TRM, Cash Flow at Risk (Reversible) ((FIN_TRM_CFAR).
CFaR: Customizing, Master Data, and Market Data

Features

It is possible to calculate Cash Flow at Risk using the following methods:

Simulation methods
- Structurized Monte Carlo for CFaR
  - Full Evaluation
  - Delta Evaluation
  - Delta/Gamma Evaluation
Parametric methods
- Variance/Covariance Approach for CFaR
  - Delta Evaluation
  - Delta/Gamma Evaluation

Activities

Calculating Cash Flow at Risk Online
You can calculate Cash Flow at Risk online using the program CFaR Single Value Analysis (transaction RMC0). In this case, the calculation results are not saved.
CFaR in the Results Database
You can calculate Cash Flow at Risk for the results database and save it there. Cash Flow at Risk is then displayed using the Analyzer Information System (transaction AIS_STDREP).