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Assessment of Risk Arising from Changes in Implied Volatility in Option Portfolios

Moslemi Haghighi, Alireza | 2024

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 56896 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Arian, Hamid Reza; Zamani, Shiva
  7. Abstract:
  8. This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive trait characterizing this category of instruments is their non-linear price behavior relative to their pricing parameters. Consequently, evaluating the risk of these securities is notably more intricate when juxtaposed with analogous scenarios involving fixed-income instruments, such as debt securities. A paramount facet in options risk assessment is the inherent uncertainty stemming from first-order fluctuations in the underlying asset’s volatility. The dynamic patterns of volatility fluctuations manifest striking resemblances to the interest rate risk associated with zero-coupon bonds. However, it is imperative to bestow heightened attention on this risk category due to its dependence on a more extensive array of variables and the temporal variability inherent in these variables. This study scrutinizes the methodological approach to risk assessment by leveraging the implied volatility surface as a foundational component, thereby diverging from the reliance on a singular estimate of the underlying asset’s volatility
  9. Keywords:
  10. Financial Risk Management ; Value at Risk ; Scenario Analysis ; Derivative Portfolio ; Volatility Surface

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