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.