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Quantitative Risk Modeling Assignment

Quantitative Risk Modeling Assignment

1. Consider the stock flying Kites. The mean of its daily returns is 0% and the volatility of its daily returns is 2%. Consider an ATM (at-the-money) call option on this stock. The price of this call option is $100. The I-day 95%ile VaR$ of the call option is approximately (assuming returns are simple returns):

I. USD 3.3

II. USD 1.645

III. Cannot be determined with the available information

2. Define VaR% as VaR% = $VaR / Initial investment. Which of the following strategies will have the lowest VaR%? GOOG refers to Alphabet Inc (Google).

I. An OTM Put option on GOOG with one week left to maturity

II. An OTM Put option on GOOG with one month left to maturity

III. Both options will have the same VaR%

3. The true advantage of using Monte Carlo Simulation techniques for simulating returns is that we do not need to assume any distribution for the underlying returns. True or False, explain it?

4. The delta of a put option is negative. True or False, explain it?


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