Suppose that in Problem 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 calculate a VaR estimate.
Problem:
A bank has a portfolio of options on an asset. The delta of the options is -30 and the gamma is 5.
Explain how these numbers can be interpreted. The asset price is 20 and its volatility is 1% per day. Adapt Sample Application E in the DerivaGem Application Builder software to calculate VaR.