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Vega is the sensitivity of an option’s price to changes in the volatility of the underlying asset. Nor … new search; suggest new definition; Search for VEGA in Online Dictionary Encyclopedia The rate of change in the price of a derivative security relative to the volatility of the underlying security. Vega hedging . It is not necessary for the price of the underlying to change in order for the vega to change; only the expected volatility of the underlying needs to change. Example strategies with long vega exposure are calendar spreads & diagonal spreads. Vomma: The rate at which the vega of an option will react to volatility in the underlying market. Long options & spreads have positive vega. The key parameter that determines the value of a contract is the volatility of the underlying asset. Unfortunately, this is a very difficult parameter to measure. When vega is large the security is sensitive to small changes in volatility. Related Terms: Greeks The vega is calculated mathematically, and can be large in a new options contract. Vega values represent the change in an option’s price given a 1% move in implied volatility, all else equal. Main Page: investment, inventory, tax advisor, inventory control, business, finance, financial, credit, Definition of Vega. vega (Financial definition) iotafinance.com Vega is the greek metric that allows us to see our exposure to changes in implied volatility. Vega measures the sensitivity of the price of an option to a change by 1% of the volatility of the underlying asset. See also Greeks. Click here for articles on vega. The prices and hedging strategies are only as good as the model for the underlying. The option's vega is a measure of the impact of changes in the underlying volatility on the option price. Vega is the change in the value of the option with respect to change in volatility. showing only Business & Finance definitions (show all 6 definitions) Note: We have 10 other definitions for VEGA in our Acronym Attic. Vega definition is - the brightest star in the constellation Lyra. Also, the impact changes in volatility have on option prices. Within the Greeks, in particular, option volatility greeks, Vega’s importance rises given how misunderstood the behaviour of volatility is. Vega for a portfolio is the sum of the vegas of its constituents. It is the second order derivative of the option value with respect to volatility. Miscellaneous Facts about Vega Vega is always positive, and, moreover, is the same value for puts as for calls; thus option prices always increase as the volatility does. Of course, the vega of a short position is negative. Options tend to be more expensive when volatility is higher. Vega. The vega tends to decline closer to the expiry date of the contract. 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