medium · FRM Part 2 Risk & Investment Management
A Chief Risk Officer observes that a specific hedging strategy using out-of-the-money puts shows a negative Marginal VaR.
What is the primary management implication of this negative sign?
- Increasing the size of the position will decrease the total portfolio VaR.
- The position carries zero stand-alone risk and is essentially 'free' to hold.
- The asset's correlation with the portfolio is exactly zero.
- The desk is over-hedged and should reduce the position to reach a zero VaR state.
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