I am attempting to calculate the Greeks, and I understand their derivation. However when it comes to actually implementing Vega I am a little lost. Vega is defined analytically as:

$$ SN'(d_1)\sqrt{T-t} $$

It seems that it requires the first derivative of a normal distribution. I thought my probability knowledge was ok but I can't seem to find anything about its behavior, or how to implement the first derivative of a normal distribution programmatically.

Can anyone help me understand this?

Thank you!

  • 1
    $\begingroup$ It is just $\frac{1}{\sqrt 2 \pi} e^{-0.5 d^2_1}$, the "bell curve" or normal density. $\endgroup$ – noob2 Jun 14 '16 at 5:06
  • $\begingroup$ Since @noob2 was first if you want to post that as an answer I will mark this resolved. $\endgroup$ – user20664 Jun 14 '16 at 8:23
  • $\begingroup$ I would simply add that the function $N(x) = \mathbb{P}(X \leq x)$ for any given random variable $X$ and $x \in \mathcal{X}$ is called the cumulative distribution function (cdf) of $X$, while the function $N'(x) = n(x)$ is called the probability density function of $X$ (pdf). So what you are looking at is not the first derivative of a normal distribution, but rather the normal pdf itself (bell-shaped). Also by definition, $N(x) = \int_{-\infty}^x n(u) du$ for a random variable with support $\mathcal{X}=\mathbb{R}$. $\endgroup$ – Quantuple Jun 14 '16 at 9:19
  • $\begingroup$ Mine was just a hint. The full answer is below. $\endgroup$ – noob2 Jun 14 '16 at 13:29

You know $$N(x)=\frac{1}{\sqrt{2\pi}}\int_{-\infty}^{x}e^{\frac{-u^2}{2}}du$$ then $$N'(x)=\frac{1}{\sqrt{2\pi}}e^{\frac{-u^2}{2}}$$ therefore $$\mathcal{V}=S_t\sqrt{\tau}N'(d_1)$$

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