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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.

(a) Using only deltas.

(b) Using the partial simulation approach.

(c) Using the full simulation approach.

In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Maturity

Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...

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