TomDoan wrote: ↑Mon Aug 26, 2024 8:57 am
The g10xrate file has all currencies quoted as USD value of a foreign currency unit whether that is the standard quotation or not.
set x = -100.0*log(usxjpn/usxjpn{1})
would give you the return to a long position of $100 US.
set x = +100.0*log(usxjpn/usxjpn{1})
would give you the return to a long position of 100 yen.
An interpretation question, based on the formulae.
Definition: if JPYUSD rate is 0.0075, means that 1 Japanese yen is equivalent to 0.0075 US dollars.
Thus, I can calculate the following:
1) JPYUSD for a
dollar investor, LONG and SHORT.
usxjpn = JPYUSD
set x = -100.0*log(usxjpn/usxjpn{1})
would give you the return to a long position of $100 US.
because log(1/x)=-log(x)
And all calculations are for JPYUSD from the perspective of a dollar investor, and say I calculate VaR for LONG = 1.74 and for SHORT = 1.49 throughout the analysis, then 2), 3) and 4) follow from 1). Correct?
2) JPYUSD for a
yen investor, SHORT and LONG i.e. OPPOSITE
set x = +100.0*log(usxjpn/usxjpn{1})
would give you the return to a long position of 100 yen i.e. SHORT
3) USDJPY for a
dollar investor, SHORT and LONG i.e. OPPOSITE
4) USDJPY for a
yen investor, LONG and SHORT
A:
as a dollar investor:
If the JPYUSD rate is falling, it means the Japanese yen is weakening against the US dollar.
Long JPYUSD: I am betting that the Japanese yen will strengthen against the US dollar. If the JPYUSD rate is falling, the yen is weakening, means my position is losing value. My VaR would be HIGHER because the market is moving against my position.
Short JPYUSD: I am betting that the Japanese yen will weaken against the US dollar. If the JPYUSD rate is falling, the yen is weakening, means my position is gaining value. My VaR would be LOWER because the market is moving in favor.
The numbers I get: If I am long JPYUSD and the rate is falling, are my VaR is HIGHER (VaR = 1.74). Conversely, if I am short JPYUSD, your value at risk is LOWER (VaR = 1.49)
That makes sense to me.
B:
as a yen investor:
If the JPYUSD rate is falling, it means the Japanese yen is weakening against the US dollar, i.e. same logic but opposite numbers.
Long JPYUSD: I am betting that the Japanese yen will strengthen against the US dollar. If the JPYUSD rate is falling, the yen is weakening, means my position is losing value. My VaR would be HIGHER because the market is moving against my position.
Short JPYUSD: You are betting that the Japanese yen will weaken against the US dollar. If the JPYUSD rate is falling, the yen is weakening, means my position is gaining value. My VaR would be LOWER because the market is moving in my favor.
However, JPYUSD for a yen investor is SHORT and LONG i.e. OPPOSITE of a dollar investor. So B does not make sense as I would have for LONG (VaR = 1.49) and for SHORT (VaR = 1.74).
How do I explain that?