Derive a model relating the change in the portfolio value

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Reference no: EM131239536

Suppose that in Problem the vega of the portfolio is -2 per 1% change in the annual volatility. Derive a model relating the change in the portfolio value in 1 day to delta, gamma, and vega. Explain without doing detailed calculations how you would use the model to calculate a VaR estimate.

Problem:

A bank has a portfolio of options on an asset. The delta of the options is -30 and the gamma is 5.

Explain how these numbers can be interpreted. The asset price is 20 and its volatility is 1% per day. Adapt Sample Application E in the DerivaGem Application Builder software to calculate VaR.

Reference no: EM131239536

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