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Suppose that an investor is long a call option on a stock index futures contract. Each option

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Suppose that an investor is long a call option on a stock index futures contract. Each option gives the right to purchase one unit of the index, which is priced at S = $400. The delta is 0.569, and the gamma is 0.010. If the volatility of the rate of return on the index is 30 percent, what is the option's VAR over the next 2 weeks at the 95 percent confidence level?
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The VAR of the asset is VAR 1645 400 ...View the full answer


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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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