Imagine a trading house that trades options in a modest way, and is looking for simple but effective metrics over which trading option limits will be set.
Some random thoughts:
1) VaR is not ideal, since the biggest concern is what happens 1% of the time.
2) Because the focus is to keep it simple, one should focus on gamma and vega risk.
3) Stress Test is an alternative but if applied in a simple way, something like limit up/limit down scenarios. Any ideas on how to calculate a stress test gamma and vega?
4) Would it be logical to set gamma and vega limits per product? I mean just the add the gammas and vegas and set the limit.