Answer: Deltas are stable

**Explanation:** The delta-normal VaR method uses a linear approximation of option price changes based on delta. This method works well when: - **Deltas are stable:** ✓ Correct - When deltas remain relatively constant over the VaR horizon, the linear approximation is accurate - **Options are at the money:** ✗ Not necessarily - At-the-money options have higher gamma, making delta less stable - **The correlation matrix is available:** ✗ While useful, this doesn't ensure accuracy of the delta approximation - **The delta-normal method can never be used for option contracts:** ✗ Incorrect - It can be used but with limitations The key requirement for accurate delta-normal VaR is that the delta remains relatively constant, which typically occurs for small price movements or when gamma is low.

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