Financial Collateral Haircuts Model (FHM) and Currency Depegs

Autoři

DEEV Oleg PROROKOWSKI Lukasz

Rok publikování 2018
Druh Výzkumná zpráva
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Popis The purpose of this report is to investigate the assumption that the Financial Collateral Haircuts Model (FHM) remains reactive to the situation of a depeg for a currency of the underlying collateral. The analysis reported in this document serves to show how the FHM reacts to a scenario where a depeg occurs and if the model adequately captures the risks associated with a depeg (FX jumps). Although the FHM is not explicitly developed to model jumps in the currency exchange ratios (FX jumps), it is assumed that the model already incorporates such jumps through its design. Thus, the analysis tests whether the FHM is sensitive to an FX jump associated with a depeg scenario. Additionally, the report determines whether a methodological overlay or an estimate override is required in the case of pegged currencies. With the diminished sensitivity, the FHM is at risk of not reacting fast enough and adequately to a depeg scenario.