Commodity, FX & Interest Rate Volatility: A CFaR Approach
A Cash Flow at Risk framework for quantifying and managing multi-asset exposure across commodities, FX, and interest rates.
A comprehensive guide to integrated multi-asset risk management using Cash Flow at Risk (CFaR). This paper combines current market analysis with practical frameworks for basis curve construction, level of cover policies, hedge instrument selection, and hedge accounting under both ASC 815 and IFRS 9.
Using Monte Carlo simulation and real-world case studies, we quantify the diversification benefit of integrated analysis and show how CFaR-driven hedge optimisation delivers better risk reduction at lower cost.
- Q1 2026 market view: commodity prices, FX volatility, and interest rate dynamics
- Basis risk fundamentals: location, grade, and timing basis with forward curve modelling
- Level of cover frameworks: rolling hedge ratios, delta-adjusted cover, and benchmarking
- CFaR methodology and EBITDA distribution analysis
- Hedge accounting under ASC 815 & IFRS 9: documentation, effectiveness testing, and component hedging
- Case study: European chemicals manufacturer — 56.5% CFaR reduction
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