Define Statistics Type
Under Element Category
column (= the determination category for sample elements). This category controls how the random walks for the risk factors are generated from the random numbers. Select either 1
Relative
or 2
Logarithmed
.
Define Volatility Type
Under
, define a volatility type and assign to it the statistics type created for Cash Flow at Risk.Define Correlation Type
Under
, define a correlation type if you want to consider correlations when calculating CFaR with the variance/covariance approach and assign to it the statistics type created for CFaR.Define Cash Flow at Risk Type
Under
, create a Cash Flow at Risk type.See also: Define Cash Flow at Risk Type
Define Evaluation Types
Under JBREVAL
), create an evaluation type. An important setting in the evaluation type/valuation rule for the calculation of Cash Flow at Risk is the setting that you have made in the Exchange Rate Types
area on the Market Data Categories
tab. Here, you specify the exchange rate type that the exchange rate needs to have to convert the foreign currency cash flow to the evaluation currency.
Define Maturity Band
Under JBRLZB
), you create maturity bands for CFaR calculations. A maturity band defines the chronological sequence of periods.
When you create a maturity band, start by entering an ID
, a short description
, and a long description
for the maturity band.
Start Date
: This date specifies the starting point of the maturity band in the case of absolute maturity bands.
If the field is left blank, the system uses the evaluation date as the starting point for generating the maturity band (relative maturity bands).
Generation Mode
:
Relative to Last Generated Date
If you opt for this value for the generation mode, the start/evaluation date is the starting point for the dates that are derived from the first row in the definition of the maturity band. The starting point of the second row of the definition is the last date that was generated for the first entry, and so forth.
Relative to Start/Evaluation Date
If you opt for this value for the generation mode, the start/evaluation date for each row in the definition is the starting point.
Enter Dates Individually
You opt for this value in the case of absolute maturity bands.
Note
Once the maturity band has been saved, it is no longer possible to change the generation mode.
Choose Enter
or (without saving). Depending on the generation mode that you have selected, the system displays either the table for the maturity band parameters or the table for entering maturity band entries directly.
You define the relative maturity bands using the following parameters:
Time Unit
Day
Month
Year
Increment
Number
Fill
Default value Do Not Fill
01
Fill to End of Month
02
Fill to End of Year
30
Fill to End of 30th Year
By choosing the Calculate Maturity Band
pushbutton, you can control which maturity band entries are generated from your entries.
Save your entries.
Define Risk Hierarchy (transaction JBRR
)
In the application menu for Treasury and Risk Management
under , you define your risk hierarchy.
In a risk hierarchy, you specify the risk factors for which you want to calculate Cash Flow at Risk. Further, you also define the aggregation levels here. For the CFaR calculations, choose risk factor Exchange Rate
as well as all currencies in which you manage your cash flows.
Enter an ID for your CFaR risk hierarchy and choose (Create
).
Enter a short name and a long name and assign an authorization group if applicable.
Now choose (Hierarchy Tree
).
In the Risk Hierarchy Node
area at the bottom of the next screen, enter a short name and a long name for the highest node of your risk hierarchy. Now choose Node
. Enter a short name and a long name for the node and select the risk type Exchange Rate
. Press "Enter" to confirm your selection. Two columns then appear, but you need only fill the first column (From Currency
). By leaving the To Currency
column empty, the system translates the currency into the evaluation currency.
Create a note for all foreign currencies in which your company makes or receives payments.
See also: Maintaining Risk Hierarchies
Settings in the Results Database
Define Portfolio Hierarchies
Cash Flow at Risk is a non-additive key figure. Cash Flow at Risk is not persisted in the results database, but it is persisted on the relevant aggregation levels. The portfolio hierarchy defines these aggregation levels.
In the application menu for Treasury and Risk Management
under (transaction AFWPH
), you create your portfolio hierarchies.
Define Key Figures and Evaluation Procedure
In the application menu for Treasury and Risk Management
under (transaction AFWKF_RA
), you need to define the CFaR key figures, the single record procedures, and the final results procedures.
See also: CFaR in the Results Database
Volatilities
The volatility of a risk factor expresses the extent to which the value of a risk factor vacillates over time. If all other factors remain unchanged, a high volatility leads to a higher Cash Flow at Risk.
In the market data tables, you need to maintain volatilities for all risk factors. A volatility always relates to a pair of currencies (foreign currency and evaluation currency).
Correlations
Correlations provide information about whether a change to a risk factor influences a change to another risk factor.
Consequently, correlations between different currency pairs are relevant for CFaR.
If you have opted in the CFaR type for the inclusion of correlations, you need to store correlations between currency pairs in the market data.
Currency Rates
See also: Editing Exchange Rates Manually
You can either enter market data manually, which you do in the application menu for Treasury and Risk Management
under using the functions Enter Volatilities
(transaction JBVFX
), Enter Correlations
(transaction CORR_MAINTAIN
), and Enter Exchange Rates
(transaction TMDFX
), or you can import market data into the system using file interfaces or datafeed.
You can use the statistics calculator to calculate volatilities and correlations.