Foreign exchange risk management: an application of value at risk to the Peruvian financial market

This article examines foreign exchange risk management in the context of the Peruvian financial market, proposing the application of the Value-at-Risk (VaR) model as an alternative to the standard regulatory models currently in use. The study is based on a statistical analysis of the return characteristics of the Peruvian nuevo sol compared to other Latin American currencies and major currencies such as the euro and the yen, covering the period from 1992 to 2001. Two approaches are used to measure VaR: a parametric one, based on the variances-and-covariances method, and a nonparametric one using Monte Carlo simulation; both evaluate exposures to foreign exchange risk and suggest specific regulations for their implementation. The results indicate that the Peruvian sol exhibits lower volatility compared to other currencies, making it feasible to use internal models for risk measurement. This research has important implications for monetary policy and financial regulation in emerging economies, highlighting the need to adapt regulations to the specific characteristics of the market. (Abstract and audio: Department of Economic Publications)