Banco invest consulting project: delta-gamma value-at-risk model for portfolio of autocall options

Abstract

Banco Invest offers various over-the-counter (OTC) derivatives to institutional clients as part of its structured investment solutions. These derivatives are managed within the bank’s Proprietary Trading Book. The focus of this consulting project is developing a Delta-Gamma Value-at-Risk (VaR) model that Banco Invest can implement to actively manage its equity derivative portfolio`s underlying risks. The first part contains the estimation of the portfolio delta and gamma. The second part consists of the quadratic approximation to calculate the portfolio standard deviation. In the last section, the authors calculate the Delta-Gamma Value at-Risk and provide recommendations to Banco Invest.