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The daily volatility of Kuala Lumpur Stock (KLSE) index is 2.5 % and daily volatility of an option is 0.8%. Assuming you have choice to

The daily volatility of Kuala Lumpur Stock (KLSE) index is 2.5 % and daily volatility of an option is 0.8%. Assuming you have choice to invest either one or both of them. However, if you invest both, there is correlation between KLSE and option of 0.6. f) Stress test can use volatility to measure the results. Kindly provide 4 different ways that stress test scenarios can be generated based on volatility. (6 marks)

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