Vega (or kappa) is the sensitivity of an option's premium to variations in the implied volatility at which the option is quoted. It measures (at a specific time in the market) how an option's premium would change if the implied volatility of the underlying asset were to vary at the option's maturity by 1 vega.

  • If the volatility goes up, the premium goes up (the portfolio is revalued).
  • If the volatility goes down, the premium decreases (the portfolio depreciates).

The variation in volatility is measured in vegas, with 1 vega being 1%.

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