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A Delta Normal Approach for Modelling Risk Forecasting of Currency Portfolio: The Case of Albanian Agro Exporters

Ardita Todri and Francesco Roberto Scalera
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Ardita Todri: Finance and Accounting Department, Economics Faculty, University of Elbasan “Aleksandër Xhuvani”, Albania
Francesco Roberto Scalera: Economics and Finance Department, University of Bari “Aldo Moro”, Italy

International Journal of Agricultural and Environmental Information Systems (IJAEIS), 2020, vol. 11, issue 4, 55-68

Abstract: This research explores the benefits of a proactive model developed through delta normal approach implementation for the forecasting of currency portfolio volatility. The latter becomes a necessity for the Albanian agro exporters as they act in an international trading environment and face the de-Euroization process effects in domestic market. The forecasting of value at risk (VaR) at 99% confidence level is obtained through the implementation of a moving window containing 251 daily currency exchange rates logarithmic returns calculated by the exponentially weighted moving average method (EWMA). A decay factor of 0.94 is used in the simulated currency portfolios database (composed from six different currency positions) pertaining to 30 agro exporters in reference of 2018 year data. The analysis of incremental VaR decomposed in risk per currency unit and VaR contribution concludes that the implementation of this mechanism offers hedge opportunities and enables the agro exporters to undertake even speculative interventions.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jaeis0:v:11:y:2020:i:4:p:55-68

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