FRM II-mock

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

FRM II-mock

Postby anbu.edu » Fri Oct 24, 2014 8:11 am

67 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.
Select one:
a. 7074
b. 15916
c. 5OO9
d. 11790.
The correct answer is A.
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
Reference: Chapter 11: VaR Mapping, Value at Risk: The New Benchmark for Managing Financial
Risk by Phillip Jorion
The correct answer is: 7074

Con you please explain how delta is 12000

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

FRM II-mock

Postby edupristine » Wed Oct 29, 2014 12:20 pm

Total Delta = (5000* Delta of deep in the money call) + (15000* Delta of deep out of money call) + (7000*Delta of a forward)

Hence, Total delta = (5000*1) +(15000*0) (7000*1) = 5000+0+7000 = 12000


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