20.24. Consider a portfolio of options on a single asset. Suppose that the delta of the portfolio...
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20.24. Consider a portfolio of options on a single asset. Suppose that the delta of the portfolio is 12, the value of the asset is $10, and the daily volatility of the asset is 2%. Estimate the one-day 95% VaR for the portfolio from the delta. Suppose next that the gamma of the portfolio is –2.6. Derive a quadratic relationship between the change in the portfolio value and the percentage change in the underlying asset price in one day.
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