Answer: For a futures contract, multiply the VaR of the S&P 500 Index by a sensitivity factor reflecting the percent change in the value of the futures contract for a 1% change in the index value.

## Explanation For linear derivatives such as futures contracts, the VaR calculation involves multiplying the VaR of the underlying asset (S&P 500 Index) by a sensitivity factor. This sensitivity factor typically represents the delta or the percentage change in the derivative's value for a 1% change in the underlying index value. **Key Points:** - **Linear derivatives** (like futures) have a linear relationship with the underlying asset - The VaR of a linear derivative = VaR of underlying × sensitivity factor - The sensitivity factor captures how much the derivative's value changes relative to changes in the underlying - For futures contracts specifically, this approach is appropriate because their price movements are directly proportional to the underlying index **Why other options are incorrect:** - **Option B**: Incorrect because options are non-linear derivatives and require different approaches (like delta-gamma approximation) - **Option C**: Incorrect because we multiply rather than divide, and the sensitivity factor should reflect percentage changes rather than absolute changes - **Option D**: Incorrect because options are non-linear and the division approach doesn't apply to linear derivatives This approach is fundamental in risk management for calculating VaR of linear derivatives using the delta-normal method.

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