VaR Risk Measure Model Of Stock Options

In the financial markets,what the most organizations concern about is how much loss they may suffer when the market takes place unexpected fluctuations , the Value at Risk (VaR) just be used to forecast this potential loss. This paper is to use VaR methods to assess the risk of stock options portfolio which comprise three kind of Hong Kong stock options in the next trading day .In this paper, Delta-Gamma-Theta method is applied to estimate the risk of stock options portfolio with differential thought,this method makes the change of value of the portfolio options be approximated by three sensitivity indices which are Delta,Gamma and Theta. Therefore, the first step is to calculate these sensitivity indexes.In the process of calculation,this paper use GARCH (1,1)-M model to fit dynamic characteristics of yields and predict the condition standard deviation in the next trading day as well.this prediction replaced standard deviation of Historical sample data can better reflect the volatility of yield within the next trading day,Ultimately be beneficial to accurately calculate the sensitivity indices of the three options.Another research in this paper is how to apply the importance sampling method into the Delta-Gamma-Theta model so as to obtain better VaR estimation of stock options portfolio by Monte Carlo simulation in computer.The results show that: reduction of the amount of variance is above 80% , which means that the Delta-Gamma-Theta model based on the importance sampling method is more effective.