Because understanding currency risk requires more than a single model

Explore currency risk through interactive analysis

Our Interactive Analytics of Foreign Exchange Risks application enables users to enter into applied statistical risk measurement methodologies via exploring and comparing different approaches to measuring currency risk in a transparent and intuitive environment. Rather than receiving abstract but static information, users can actively retrieve market data, make assumptions and observe how different modelling choices influence risk estimates.

Built on historical exchange-rate data provided by the European Central Bank, the application allows users to analyse currency movements, assess the statistical properties of exchange-rate returns and quantify potential losses under various methodologies. Across 30 different currencies, by varying parameters, observation periods and modelling assumptions, users can gain a deeper understanding of the individual drivers of foreign exchange risk and the strengths and limitations of alternative modelling approaches.

From established models to AI-supported insights

Consistent with the philosophy of Interactive Risk Analytics, the application follows a transparent and didactical approach. Established quantitative methods are presented first and can be examined step by step regarding their adequacy for a given exchange rate evolution for a given period of time by providing the possibility to backtest any given model/parameter configuration. These approaches are then complemented by AI-supported techniques, enabling users to explore whether and how modern machine-learning methods possibly provide additional insights, improved predictive capabilities or alternative perspectives on risk.

The result is an interactive environment that transforms – individually for each of the 30 currencies provided - foreign exchange risk measurement from a theoretical exercise into an engaging analytical experience. Users are empowered to not only determine risk figures of a model, but also to challenge the adequacy of underlying methodological assumptions that generated that calculated result.

The interactive risk analytics for foreign exchange risks is a first application of a series of interactive risk analytics applications that we aim to successively present in the internet to enable interested peers to investigate and form their own opinion on hot topics using quantitative methods and at the same time exploring possible improvements via deliberately applying alternatively chosen methods of artificial intelligence.

These are the Interactive Risk Analytics Applications planned to follow next: 

• assessing portfolio credit risk for structured investments in private credit funds and 
• analysing the impact of geopolitical risks on different risk regimes of commodity futures (calculated exemplarily for the two commodities crude oil and copper).