Option Greeks: Vega
Vega is a measure of the sensitivity of the option price to the volatility of the underlying asset.
It is expressed as the amount of money an option will gain or lose, with a 1% increase or decrease in volatility.
The higher the volatility, the higher is the value of the option. For example, an option with a 0.25 vega will gain 0.25% in value for 1% increase in the volatility of the underlying asset.
It is represented as follows:
All long options have positive vegas.
Vega is also called kappa, omega, tau, zeta, and sigma prime.
Vega can be an important Greek to monitor, especially in volatile markets since some of the option strategies can be very sensitive to changes in volatility. One such strategy is an option strangle, whose value is extremely dependent on changes to volatility.
Calculating Vega
Vega is calculated using the following formula:
Lesson Resources
Data Science in Finance: 9-Book Bundle
Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.
What's Included:
- Getting Started with R
- R Programming for Data Science
- Data Visualization with R
- Financial Time Series Analysis with R
- Quantitative Trading Strategies with R
- Derivatives with R
- Credit Risk Modelling With R
- Python for Data Science
- Machine Learning in Finance using Python
Each book includes PDFs, explanations, instructions, data files, and R code for all examples.
Get the Bundle for $29 (Regular $57)Free Guides - Getting Started with R and Python
Enter your name and email address below and we will email you the guides for R programming and Python.
