FRM Part II · FRM Exam Part II · VaR Mapping
A portfolio contains 20,000 long call options, each on one share. The stock price is $80, the option delta is 0.5, the stock's daily volatility is 2%, and the risk manager uses a 95% one-tailed z-value of 1.645. What is the one-day delta-normal VaR of the position?
The one-day 95% delta-normal VaR is $26,320. The delta-equivalent exposure is $800,000 (0.5 × 20,000 × $80), daily dollar volatility is $16,000 at 2%, and multiplying by 1.645 gives the VaR. Skipping delta would double the figure.
- A$16,000
- B$52,640
- C$37,216
- D$26,320Correct
Explanation
The delta-equivalent exposure is 0.5 × 20,000 × $80 = $800,000. Dollar daily volatility is 2% × $800,000 = $16,000. VaR = 1.645 × $16,000 = $26,320. The $52,640 option ignores delta, and $16,000 omits the z-value.
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