Tid: 24 januari 2000 kl 1515-1600

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Henrik Waldenlind

Titel: Managing Volatility Risk


To an option trader who manages a large portfolio with options on different underlying contracts, the volatility risk is of great importance. The main idea of this paper is to use a Value at Risk (VaR) framework to measure and manage that risk, i.e. to estimate a measure in money with a given degree of confidence of how much one can lose from one's portfolio over a given time horizon. To a reader familiar with Delta VaR most of the theory in this paper is very similar. The model developed could be called Vega VaR, but it will be referred to as Volatility Value at Risk (WAR). The model can only manage volatility risk and is by no means a complete model of all the risks in an options portfolio, since a trader has several other risks to concern. But the model is indeed a way to capture the risk associated with volatility in a diversified volatility portfolio.

In the paper the underlying mathematical theory will be summarised and fitted from the usual VaR theory to fit the new WAR model. The model will also be statistically tested on a portfolio of stock options on different underlying contracts, time to expires, exercise prices and boundary values.

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