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Vega

• Is the measure of change in an option given a change in the volatility. Theoretically, it measures the instantaneous change in premium to the instantaneous change in volatility. In practice, it tends to be viewed as the change in premium given a 1 percent in volatility.

 
 Embedded terms in definition
 Change
Option
Premium
Volatility
 
 Referenced Terms
 Kappa: The ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility.Is an option term sometimes used as a synonym for Vega, lambda or sigma. See Vega.

 Lambda: The ratio of a change in the option price to a small change in the option volatility. It is the partial derivative of the option price with respect to the option volatility.Is an option term sometimes used as a synonym for Vega, kappa, or sigma. See Vega.

 Sigma: Is an option term sometimes used as a synonym for Vega, lambda or kappa. See Vega.

 Vega risk: Refers to the monetary exposure for a change in volatility for an option. It might refer to a change from 6 to 7 or 6 to 5 percent depending on whether a party is short or long the option. Some participants breakdown the Vega risks into finer gradients or decimals.

 
 Related Terms
 Vega risk

<< Variation margin Vega risk >>

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