Consider a portfolio of options on a single asset. Suppose that the delta of the
Chapter 22, Problem 22.18(choose chapter or problem)
Consider a portfolio of options on a single asset. Suppose that the delta of the portfolio is 12, the value of the asset is $10, and the daily volatility of the asset is 2%. Estimate the 1-day 95% VaR for the portfolio from the delta. Suppose next that the gamma of the portfolio is 2:6. Derive a quadratic relationship between the change in the portfolio value and the percentage change in the underlying asset price in one day. How would you use this in a Monte Carlo simulation?
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