Options risk exposure
What is the best method for calculating the risk exposure caused by a portfolio of short options (i.e., we've been writing options)?
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What do you mean? What's wrong with the greeks?
Bust it.
Aiyyaaa. No of course this isn't true. The Greeks are a way to generalize the sensitivities of options, which of course allows us to view risk in the context of portfolio of many options. For a practitioner, V@R is a bit of a funny thing as it is supposed to tell you the probability of an $ X loss over Y timeframe, usually using history as a guide. It will not tell you what you are sensitive to, or what risk you are really running.
Thanks, that's been helpful. For a portfolio of options could you just take the average vega, for example, of all the options in the portfolio and use that to express the portfolio's sensitivity to imlied vol?
Greeks are additive... I'd really suggest you learn more about options before trading them or it can end in tears.
I'm not trading them. I have to do a risk analysis on a portfolio of options. Our firm is new to this. I will read up on them, but any help is appreciated.
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