FRM Glossary · Part II · Market Risk

Delta-Normal VaR

A linear VaR approximation that uses the delta of each option to map non-linear positions into an equivalent linear exposure.

In more detail

Delta-normal (or delta-gamma) VaR replaces each option position with its delta-equivalent underlying share count, then computes portfolio VaR under a variance–covariance assumption. It captures only first-order (delta) risk — and optionally second-order (gamma) convexity — but ignores vega and higher-order Greeks, which can materially understate VaR for option-heavy books.