Financial Risk Manager Part 1

Get started today

Ultimate access to all questions.

Explanation:

Using the delta-normal approach, the VaR of an option position is calculated by multiplying the absolute delta of the position by the VaR of the underlying asset.

Calculate the 1-day 99% VaR of the stock: Stock VaR = Current Price × Daily Volatility × Z-score (99%) Stock VaR = 50 × 0.0121 × 2.33 = USD 1.40965
Calculate the equivalent delta of the option position: Position Delta = Number of Options × Option Delta = 500 × 0.5 = 250
Calculate the VaR of the option position: Position VaR = Position Delta × Stock VaR = 250 × 1.40965 = USD 352.41 (closely matches option D due to minor rounding differences in the Z-score).

Explanation:

Using the delta-normal approach, the VaR of an option position is calculated by multiplying the absolute delta of the position by the VaR of the underlying asset.

Calculate the 1-day 99% VaR of the stock: Stock VaR = Current Price × Daily Volatility × Z-score (99%) Stock VaR = 50 × 0.0121 × 2.33 = USD 1.40965
Calculate the equivalent delta of the option position: Position Delta = Number of Options × Option Delta = 500 × 0.5 = 250
Calculate the VaR of the option position: Position VaR = Position Delta × Stock VaR = 250 × 1.40965 = USD 352.41 (closely matches option D due to minor rounding differences in the Z-score).

Comments (0)

No comments yet.

Q.33 Hans Zimmer is a portfolio manager at ABC firm. The firm wishes to buy 500 call options on a stock whose current price is USD 50 with a daily volatility of 1.21%. The strike price is USD 45, the delta of the option is 0.5, and each call option costs USD 5. If Hans wishes to calculate the VaR of the position using the delta-normal approach, what will be the 1-day 99% VaR?

Other Sources

Community

UAnonymous

Last updated: June 22, 2026 at 14:11

704.85.

390.23.

317.17.

352.43.