Suppose that in Problem 10.10 the vega of the portfolio is 2 per 1% change in the
Question:
Suppose that in Problem 10.10 the vega of the portfolio is —2 per 1%
change in the annual volatility. Derive a model relating the change in the portfolio value in 1 day to delta, gamma, and vega. Explain, without doing detailed calculations, how you would use the model to estimate a VaR.
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