Market Risk Simulation for Multi‑Currency Revenue Linked to Brent (EUR Book)
Market Risk Simulation for Multi‑Currency Revenue Linked to Brent (EUR Book) This guide shows how to simulate monthly revenue risk when commodity prices are linked to Brent (in USD), the book currency is EUR, and you have revenue streams across EUR, USD, INR, and AUD markets. We model Brent with a mean‑reverting process and preserve correlation with FX using a Monte Carlo method. Assumptions: Prices are monthly and linked to Brent in USD. Brent follows a mean‑reverting (Ornstein–Uhlenbeck) process in log‑space. FX pairs are modeled in log‑space (e.g., GBM for simplicity) and jointly simulated with Brent via a correlation matrix. Book currency is EUR; portfolio revenue is aggregated in EUR. Why this setup works: ...