Var

agrawal.caamit
Posts: 7
Joined: Mon May 05, 2014 7:53 am

Var

Postby agrawal.caamit » Thu May 15, 2014 9:47 am

Bank has a portfolio of derivatives on stock S as under:
i .5000 deep out of money call options
ii . 15000 deep in the money call options
iii . 7000 forward contracts
Which one of the following is closest to the correct estimation of 1 day V a R of the portfolio at 99% confidence level if the value of the stock is USD 20, and its volatility is 20%per annum.

Question is from pristine mock test.

edupristine
Finance Junkie
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Joined: Wed Apr 09, 2014 6:28 am

Var

Postby edupristine » Fri May 16, 2014 1:39 pm

If the portfolio is mapped to the underlying position, the deep in the money call has a delta of 1. A deep out of money call has a delta of zero. Delta of forward is 1. So total delta of the portfolio is 12000. The one day volatility for stock S is computed as .20 x sqrt(1/250) =.01265. So portfolio Va R= 2.33X20X12000X.01265=7074


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