Foreign Currency Options Portfolio VaR Research Under Jump-Diffusion Process

Option as a financial derivative tool, it has gained wide acceptance in foreign currency risk management of corporation. In recent decades, it has appeared a tendency that many companies manage foreign exchange risk by properly combining various options in international market. In spite of foreign currency option is a good evade risk tool, foreign currency option as a financial derivative itself gestate huge risk because of foreign currency produced as evading risk demand. So it is very necessary and properly to research foreign currency options risk.In particular, in natural market condition, common diffusion process that describe natural change of price—Brownian motion can't explain deviant change of exchange rate that was arose by abnormal condition of market(that is non-economy factor). When these changes arise, exchange rate will appear discontinuous and large-scale "jump". Then foreign currency risk becomes a worthy attention problem when underlying currency price obeys jump-diffusion process constitute of a continuous Brownian motion and many specific discontinuous jumps. So it is important to research market risk measurement of option portfolio(VaR) under jump diffusion process. It is convenient for risk manage and control, and greatly enhance resist risk ability of finance organization in international finance market.Firstly we introduce conception of VaR and its methods in this paper. Then we research VaR of foreign currency options portfolio when exchange rate obeys Brownian motion. Finally, we research VaR of foreign currency options portfolio when exchange rate obeys jump-diffusion process.