Question

A bank has written European a call option on one stock and a European put option on another stock. For the first option, the stock price is 50, the strike price is 51, the volatility is 28% per annum, and the time to maturity is nine months. For the second option, the stock price is 20, the strike price is 19, the volatility is 25% per annum, and the time to maturity is one year. Neither stock pays a dividend, the risk-free rate is 6% per annum, and the correlation between stock price returns is 0.4. Calculate a 10-day 99% VaR
(a) Using only deltas.
(b) Using the partial simulation approach.
(c) Using the full simulation approach.


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  • CreatedJuly 30, 2015
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