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Alternative Value-at-Risk Models for Options

Alfred Lehar

University of Calgary - Haskayne School of Business

March 31, 2000

EFMA 2000 Athens

The aim of this paper is to evaluate the performance of different value-at-risk models. While most previous studies focus on linear positions, this paper investigates the suitability of alternative approaches for positions in stock-options. Risk measurement for options is more complex, since movements in the underlying risk factor (stock-prices) have a non-linear impact on option prices and option prices themselves depend on volatility, which is not directly observable on capital markets. Standard models based on the Black-Scholes analysis and models, that build in the stochastic volatility option pricing model by Hull and White are compared using transaction data from the Austrian stock market. It is found that while the Hull-White model is the only model that passes a proportion of failures test, it substantially underestimates losses in those cases, where the loss exceeds the value-at-risk. All value-at-risk models work better for calls, options with a shorter time to maturity and for at or out of the money options.

Number of Pages in PDF File: 42

JEL Classification: G28, G13

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Date posted: November 6, 2000  

Suggested Citation

Lehar, Alfred, Alternative Value-at-Risk Models for Options (March 31, 2000). EFMA 2000 Athens. Available at SSRN: https://ssrn.com/abstract=248088 or http://dx.doi.org/10.2139/ssrn.248088

Contact Information

Alfred Lehar (Contact Author)
University of Calgary - Haskayne School of Business ( email )
2500 University Drive, NW
Calgary, Alberta T2N 1N4
403-220-4567 (Phone)
HOME PAGE: http://homepages.ucalgary.ca/~alehar/
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