Questions on Historical VaR for options, how do you actually do this.

  1. how you would evaluate Value-at-Risk for an equity option that has been recently listed on the exchange. The obvious is that you don't have the history of prices.
  2. even if you have history of prices (for options that have been listed for some time), let's say you have 100 days of history, is it as simple as taking the prices and evaluating the returns of the 100 days? Something doesn't seem right with this, partly because of question 1 above and in a sense, the option instrument I hold today is different to the option instrument I held yesterday and previous 100 days, in relative terms. I may have acquired an ATM option but now it may be deep OTM and also it may have been a 6 month option then, now about 3 months. In another sense, it is exactly the same instrument.
  3. I feel like the right way to evaluation a historical sim value at risk is to evaluate the price option which has the same relative trade economics as the one that i hold today, so you would actually need to have history of implied vol surface, relative forward/divs, int rates you need to have history of div yields, int rates and use the same relative strike. If i have an OTM put that us 90% away from the spot, then i would need to use 90% strike for each of the past 100 days.

Is number 3 above the right way. If so is computation a big issue, especially when you are dealing with many options across your whole portfolio. If number 2 above is the right way to do this, then how do you resolve problem you face on number 1?



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