Financial Risk Manager Part 1
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Kevin, FRM, is a risk manager in the local bank's derivatives trading desk. He is currently adopting a delta-normal approach to calculate the expected shortfall for various option positions. Specifically, the trading desk has positions in the call option on stock XYZ with strike prices $35, $40, $45, and $50. Given that the current spot price of stock XYZ is $40, which position's delta-normal ES will be the closest to the true ES?
Kevin, FRM, is a risk manager in the local bank's derivatives trading desk. He is currently adopting a delta-normal approach to calculate the expected shortfall for various option positions. Specifically, the trading desk has positions in the call option on stock XYZ with strike prices $35, $40, $45, and $50. Given that the current spot price of stock XYZ is $40, which position's delta-normal ES will be the closest to the true ES?
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A
The call option with a strike price of $35.
B
The call option with a strike price of $40.
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