Consider a portfolio of options on a single asset. Suppose that the delta of the portfolio is

Question:

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. Suppose 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.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...