FX Cash Flow at Risk Simulator
How much could an FX exposure cost you in a bad year, and how much of that does a hedge take away? Set the exposure, volatility, horizon and hedge ratio, then compare forwards with options.
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Reporting currency
Exposure
Indicative long-run levels, not live market data. Set your own.
Instrument
Confidence
Unhedged CFaR
£6.36m
12.7% of exposure
Hedged CFaR
£3.18m
6.4% of exposure
Risk removed
50%
at 50% hedged
Upside kept
50%
Forwards give up upside on the hedged share
Distribution of outcomes
Gain or loss on the exposure versus today's rate across 20,000 simulated paths. Dashed lines mark the 5% worst case.
- Unhedged
- Hedged
Hedge ratio frontier
CFaR at every hedge ratio, forwards versus options. The gap between the lines is the price of keeping upside.
- Forwards
- ATM options
Method and caveats
Model. The exchange rate follows a driftless lognormal path with the volatility you set, simulated over 20,000 paths (10,000 antithetic pairs). Outcomes are the gain or loss on the exposure versus today's rate, in reporting currency.
CFaR is the expected outcome minus the outcome at the chosen confidence level: at 95%, the shortfall you would expect to exceed in only one year in twenty. The closed-form check z · σ · √T · exposure should sit close to the unhedged figure.
Hedges. Forwards lock the hedged share at today's rate, with interest rate carry ignored so the forward equals spot. Options are at-the-money, priced with Black-Scholes at zero rates, and the premium is a cost in every scenario.
Real exposures need real inputs: forecast confidence, correlations across currencies, carry and implied volatility. That is the multi-asset CFaR we build with clients. Treat this as a planning tool, not advice.
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