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In the meantime I succeeded in setting up a simple market environment and I am now able to price plain vanilla equity options and calculate their sensitivities.

Currently I am moving on to run some VaR calculations for single underlying portfolio.
From my first test runs I suppose that I always have to provide the covariance input file “covariance.csv”, even if I only have one single underlying – right ?

How exactly do I calculate the covariance parameter in this file ?
Since I am looking at a single underlying case, the correlation coefficient will be 1 but I don’t understand how I have to scale the respective value.

The userguide says “Also note that covariances are expected to include the desired holding period, i.e. no scaling with square root of time etc is performed in ORE”
Maybe I am missing something obvious but I simply can’t find the correct formula for covariance input. I guess Spot and Volatility also have to be included somehow ?

Could you please provide an example for calculating the correct covariance parameter ? Thanks for your help !


Five Eights