Answer: USD 557

The correct answer to the question is B. USD 557. The explanation for this is based on the delta-normal approach to calculate Value at Risk (VaR) for non-linear derivatives such as options. The delta of the option, which is 0.5 in this case, indicates the sensitivity of the option's price to a change in the underlying stock price. To calculate the 1-day 95% VaR for one share of the underlying stock, we use the daily stock return volatility of 1.82%, the z-score for a 95% confidence level (1.645), and the current stock price of USD 62. The calculation is as follows: \[ \text{VaR for 1 share} = 0.0182 \times 1.645 \times 62 = USD 1.8562 \] Since the delta of the option is 0.5, the VaR for one option is half of the VaR for one share of the stock: \[ \text{VaR for 1 option} = 0.5 \times 1.8562 = USD 0.9281 \] Given that the portfolio manager bought 600 call options, the 1-day 95% VaR of the entire position is calculated by multiplying the VaR of one option by the number of options: \[ \text{1-day 95% VaR of position} = 0.9281 \times 600 = USD 556.86 \] This result is rounded to USD 557, which corresponds to option B. The other options provided in the question are incorrect due to various reasons such as ignoring the delta, using the wrong confidence level, or not applying the delta to the formula.

Author: LeetQuiz Editorial Team