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Delta Gamma VaR

Delta Gamma VaR is a way to measure the value at risk for non-linear portfolios using the analytical approach. The method is essentially a second order Taylor series approximation to calculate the value at risk. This approach will work as long as the value of the position can be reasonably approximated by a quadratic function. This will work over a moderate range of price variations, but will not be appropriate for large price moves in crisis situations. You can read a more detailed treatment of how to implement Delta Gamma VaR here.

 

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