How are the Volcube Vega and Gamma risk limits and the Volcube Risk Metric calculated?
The Volcube Risk Limits are set automatically by the synthetic Volcube Risk Manager. This Risk Manager works in much the way a real-world derivatives risk manager works. With respect to gamma risks; the way these are calculated is that the gamma risk is your maximum loss up and down a certain number of standard deviations away from the spot price. Only short gamma is seen as a risk. With vega, there is a maximum amount of at-the-money vega (either long or short) that can be held and a maximum amount of vega at the ends of the Risk Detail. This is precisely how a typical options risk manager will analyse a portfolio. You may find the Market Mentor tool is helpful; click the MM bubble in the top panel of the Messenger to get help with your Risk. The Volcube Risk Metric (VRM) is just our way of summarising all your gamma and vega risk in one number and it sums the five individual risk limits shown in the Risk Limit panel.
There is plenty of material in the Volcube Learning environment that can help with this. Please check out Blitz Video #4 Trading within Risk Limits in Learning\Options videos. Also check out the article in Learning\Options articles\Option Risk\About Volcube risk limits.
Have a question for the author? Happy to help! Email [email protected].
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