Answer: USD 0.28

## Explanation Using the delta-normal method for VaR calculation: **Given:** - Stock price (S) = USD 23 - Daily volatility (σ) = 1.5% = 0.015 - Delta (Δ) = -0.5 (for long put position) - Confidence level = 95% (z-score = 1.645) - Holding period = 1 day **VaR formula for options using delta-normal method:** \[ \text{VaR} = |\Delta| \times S \times \sigma \times z \] **Calculation:** \[ \text{VaR} = |-0.5| \times 23 \times 0.015 \times 1.645 \] \[ \text{VaR} = 0.5 \times 23 \times 0.015 \times 1.645 \] \[ \text{VaR} = 0.5 \times 0.345 \times 1.645 \] \[ \text{VaR} = 0.1725 \times 1.645 \] \[ \text{VaR} = 0.2837 \] **Result:** USD 0.2837 ≈ **USD 0.28** **Key points:** - The absolute value of delta is used because VaR represents potential loss - For a long put position, the risk comes from the stock price increasing (which decreases put value) - The delta-normal method linearizes the option's risk using delta as the sensitivity measure - The 95% confidence level corresponds to a z-score of 1.645 for one-tailed normal distribution

Author: LeetQuiz .