VaR on exotic option

[ekaleshan]

Hi Sir,
I find it difficult to calculate the historical simulation to determine VaR since what parameter should I consider.
Payoff at maturity is max{AUD25,000, [(SP500T/SP5000 x USD18,105)/((USD/AUD)T)]}

• SP500T represents the value of the S&P 500 Index (USD basis) at maturity of the investment product and SP5000 the value of the S&P 500 Index (USD basis) at inception of the investment in the structured product (i.e., the end of June 2016). SP500 is presented in monthly basis.
• USD/AUD represents the US dollar/Australian dollar exchange rate (price of AUD 1 in USD), for which the value as at end June 2016 was 0.7426

The question is:
1. So should I calculate the return based on payoff and then I divided with the previous month? Or any other suggestions. Thanks.
2. Should we calculate the VaR? since there is a capital protection of 25,000 AUD.

Thanks.

 

[Nicole Seaman]

Hi Sir,
I find it difficult to calculate the historical simulation to determine VaR since what parameter should I consider.
Payoff at maturity is max{AUD25,000, [(SP500T/SP5000 x USD18,105)/((USD/AUD)T)]}

• SP500T represents the value of the S&P 500 Index (USD basis) at maturity of the investment product and SP5000 the value of the S&P 500 Index (USD basis) at inception of the investment in the structured product (i.e., the end of June 2016). SP500 is presented in monthly basis.
• USD/AUD represents the US dollar/Australian dollar exchange rate (price of AUD 1 in USD), for which the value as at end June 2016 was 0.7426

The question is:
1. So should I calculate the return based on payoff and then I divided with the previous month? Or any other suggestions. Thanks.
2. Should we calculate the VaR? since there is a capital protection of 25,000 AUD.

Thanks.

Hello @ekaleshan

While you are waiting for an answer, you may find it helpful to use the search function here in our forum. There are many threads that discuss these concepts, and they may help to answer your questions

Nicole

 

[surojitpalb]

@David Harper CFA FRM @Nicole Seaman

Going through the Exotic option part but finding it difficult to solve for the numericals (Revised everything else ). Should skipping the numericals and revising theory a good idea? Please do help

 

[emilioalzamora1]

Exotic options will be tested only in a qualitative way; the exam it will perhaps give you certain scencarios and you need to determine which sort of option (barrier, Asian, compund) it might be but definitely no calculation question I suppose. Way too difficult and time-consuming.

 

[surojitpalb]

Exotic options will be tested only in a qualitative way, in the exam it will perhaps give you certain scencarios and you need to determine which sort of option (barrier, Asian, compund) it might be but definitely no calculation question I suppose. Way too difficult and time-consuming.

Thanks @emilioalzamora. Feeling relived now a little bit