## Delta Normal VaR

swarnendupathak
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### Delta Normal VaR

The delta-Normal method of VaR of an Option position tells us that as an option moves into the money, then
(a) The VaR of a call falls & VaR of a Put rises.
(b) The VaR of a call rises & VaR of a Put falls.
(c) VaR of a both Call & Put option falls
(d) VaR of a both Call & Put option rises.

Swarnendu

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swarnendupathak
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### Re: Delta Normal VaR

Swarnnedu

swarnendupathak
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### Re: Delta Normal VaR

Swarnendu

content.pristine
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### Re: Delta Normal VaR

When an option is out of the money, its has a specific delta and VaR. Lets call them delta1 (lies between 0 and 0.5) and VaR1.
When the underlying moves in such a way that the option is moving in the money. The delta increases from delta1 to 0.5. Now, the risk of the position declines as we get a payoff from the option. Hence VaR decreases.
This is same for both call and put positions.

What is the source of this question?

swarnendupathak
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### Re: Delta Normal VaR

Thanks very lucid explanation

Swarnendu

AMITAG1990
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### Re: Delta Normal VaR

Sorry Sir but i have doubt, theoritically i agree as option move in the money Var should decrease but in my opinion as the option will move in the money delta of the option increases from 0.5 to 1 and statastically
Var(option)=Delta* var(underlying) and as per this Var should increase. So plz make it little more clear for me.

content.pristine
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### Re: Delta Normal VaR

Hi Amit,

Lets just keep this simple. Lets say I hold a call option, are my losses higher when the call is OTM or ITM? Clearly, OTM is more risky as I lose my premium. For ITM options, the risk is much less as I get a positive payoff that offsets the option cost. When risk is less, VaR is less..

As for your formula, I have never seen it before. Can you give me its source?