Calculating VaR for Futures and Options - EXCEL

About the Course

The course consists of an EXCEL file that demonstrates a methodology for calculating the Value at Risk (VaR) measure for futures and options.

• A Monte Carlo Simulator is used to first generate a terminal prices series for a period of 365 days.
• This is repeated for 100 scenarios.
• For each scenario, payoff or intrinsic value 365-day series is calculated using these terminal prices and strike prices for a futures contract as well as a call option and a put option.
• For each scenario, the price or discounted value series is calculated from the payoffs derived for each instrument.
• Average price series across all 100 scenarios is determined for each instrument.
• Return series is derived from the average price series for each instrument.
• Volatilities are calculated for each instrument.
• VAR metrics are calculated using the Variance Covariance Simple Moving Average (VCV SMA) and Historical simulation approaches for various confidence levels for each instrument.

Learning Objectives

After taking this course you will be able to:

• Simulate terminal prices for the underlying asset using a Monte Carlo Simulator
• Determine payoffs and price series for the futures, call option and put option using the simulated terminal prices
• Derive a return series from the derivative instruments’ price series
• Calculate VaR using the VCV SMA and Historical Simulation approaches for futures and options using the derived return series

Prerequisites

Should be comfortable with basic mathematics, statistics, probability and EXCEL and some familiarity with markets, including derivative markets, and portfolio management.

Target Audience

The course is targeted towards intermediate and advanced users and is aimed primarily at individuals responsible for capital allocation, limit setting and risk management within banks, insurance companies, mutual funds, as well as finance departments of non-financial organizations who need to quickly review or refresh their understanding of VaR methodologies for work or professional development.