Financial Collateral Haircuts Model (FHM) and Currency Depegs

DEEV, Oleg and Lukasz PROROKOWSKI. Financial Collateral Haircuts Model (FHM) and Currency Depegs. Brno: Institute of Financial Complex Systems, 2018, 9 pp. 1.

Basic information

Original name

Financial Collateral Haircuts Model (FHM) and Currency Depegs

Authors

DEEV, Oleg (643 Russian Federation, belonging to the institution) and Lukasz PROROKOWSKI (616 Poland, guarantor, belonging to the institution)

Edition

Brno, 9 pp. 1. 2018

Publisher

Institute of Financial Complex Systems

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Other information

Language

English

Type of outcome

Výzkumná zpráva

Field of Study

50206 Finance

Country of publisher

Czech Republic

Confidentiality degree

není předmětem státního či obchodního tajemství

RIV identification code

RIV/00216224:14560/18:00104588

Organization unit

Faculty of Economics and Administration

Keywords in English

collateral haircats; currency depeg

Tags

International impact

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Abstract

V originále

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.