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NEW QUESTION: 1 Between two options positions with the same delta and based upon the same underlying, which would have a smaller VaR? A. the position with a higher theta B. the position with a higher gamma C. the position with a lower gamma D. both positions would have an identical VaR Answer: B Explanation: Explanation The second order approximation of the VaR of an options position is given by [Option delta x Underlying's VaR - Option gamma/2 x (Underlying's VaR)
2]. Therefore, a higher gamma reduces VaR and a lower gamma increases VaR. Hence Choice 'b' is the correct answer.
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