Questions tagged [vega]
The vega tag has no usage guidance.
92
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Gamma exposure in forward volatility [closed]
Is there a way to incorporate gamma into forward volatility? For example, an index with forward IV of 11% and 30DTE (shorter maturity) will have different gamma exposure for the same index with ...
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4
votes
1
answer
213
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Vega hedge of a barrier option
I was re-reading Lorenzo Bergomi's paper Smile Dynamics I. On the first page, he makes the point that it is necessary for a model to match the vanilla smile observed in markets in order to incorporate ...
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1
answer
658
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Delta-Gamma neutral vs Delta-Vega neutral
Imagine that the underlying stock price is 110. The call option has a strike price of 100. The annualized volatility is 25% and the interest rate is 10%. Finally, the time to maturity is 0.5 years. We ...
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127
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How to compute Vega in the Heston Model
I am computing European Option Sensitivity as: Delta, Vega and Gamma. I am using Heston Model to simulation spot and the variance.
While computing Delta and Gamma, I understand, we need to bump spot ...
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1
answer
279
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Gamma and Theta of a swaption
For a swaption, I had 2 questions:
how would I guage the PnL based on RV vs IV on a swaption?
I'm guessing its 0.5 x gamma x (RV^2-IV^2)(or realized variance - implied variance)
Not 100% sure on ...
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Practical risk management on snowball autocallable portfolios
I am new to exotic options pricing and risk management. The scenario that I encounter is that the market maker sells snowball autocallable products(accumulated coupon) every trading day and has to ...
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1
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475
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How can you compare Vega between strikes?
Given a specified maturity is there a way to compare Vegas between different strikes? Surely the Vega of an ATM option will be very different from the same Vega of an OTM option
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2k
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How do we hedge option vega practically?
Suppose I’m a market maker, and I collect some spread buying an option due the flow I get. In this example, I must always quote. I want to hedge as much of the risk as possible over the lifetime of ...
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2
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Finite Differences Vega calculation - confirmation on proper approach
I have a MC simulation that uses finite differences to calculate the Greeks. It's for baskets and calendar spreads mostly.
Now the logical (to me anyway) approach to calculate Vega is to increase the ...
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605
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Gamma, Theta, Vega, Vanna and Volga PnL under Bachelier
Is there a PDE that decomposes the daily PnL as delta, gamma, vega vanna and volga but under Bachelier model (assuming normal vol) ?
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Realizing the same PnL as Gamma Vs Vega
Consider a delta hedged option postion.
Futhermore assume that I can perfectly forecast realized volatility over the life of the option.
Vol I buy the option at = Implied Vol (IV)
Realized volatility ...
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1
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Why Do I Need to Scale Options Vega w.r.t T (Time till Expiration)
In the book that I am using, it said that I need scale vega according time with this formula: $\sqrt{90/T}$ to get the weight of the vega w.r.t t. The reasoning it offered is as follows:
"...
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2
answers
133
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Vega of option with market derived parameters
Suppose I have a volatility model of the form $\sigma=f(X(x,y), Y(x, y))$ where $f$ is some function of the variables $X, Y$ which are calibrated using some calibration procedure with market implied ...
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158
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Calculate Gamma and Vega of a portfolio of convertible bonds
I am being asked to calculate the gamma and vega of an existing portfolio of convertible bonds. does anyone has a documentation of direction that i could use to get going pls? This is a premiere for ...
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266
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Purpose of Vega Hedging
I am trying to understand the principle of vega hedging.
When should a market maker vega hedge his position ?
Let's suppose that a market maker delta and gamma hedge himself, and carries his position (...
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139
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CMS cap has more vega exposure than CMS floor for same strike
When I priced a 10y expiry single look CMS30 ATMF CAP, I noticed that the vega exposure is higher than that of the same 10y expiry single look CMS30 ATMF FLOOR. Why is that?
I have a suspicion that it ...
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Risk-managing vanilla books (sell-side)
I am interested in learning more about how traders risk-manage books of vanilla options. I presume there should be a fairly standard list of facts. For the moment, the area of interest is FX, as ...
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Vol, Gamma, Vega -- essentially all the same?
When talking to traders I hear this sentence a lot
I am a buyer/seller of X
where X = {vol, gamma, vega}
Is X basically all the same -- they are just saying -- I think implied volatility is cheap or ...
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2
answers
1k
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Relationship between VIX and Vega
Assuming that all other factors (such as underlying price, strike price, etc.) remain unchanged, I want to see how a spike in VIX would affect the price of the average call option? Assume Vega is ...
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320
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Option Vega for a portfolio of Options
I am given a list of Options positions consisting of various combinations of Underlying and ...
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169
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How could option vega be remapped on reduced volatility surface?
try to be clear to ask my question:
Suppose the original vol surface is a n by m matrix where n is the number of pillars in the volatility term structure and m is the number of strikes. According to ...
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552
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Delta and vega sensitivities for Cap
I have a task to do but it is very difficult..
I have to calculate the:
Delta Sensitivity analytically, that is the first derivative of caplet price wrt the forward rate, using the black model to ...
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1
vote
1
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308
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Calculating vega in Heston?
I often see Vega in the Heston model specified as:
\begin{align*}
\nu & =
\frac{\partial C}{\partial v} =
\frac{\partial C}{\partial v_0} 2 \sqrt{v_0}
\end{align*}
where $v = \sqrt{...
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How much does a rise in volatility in a short-term option affect a longer-term option
How would a rise in implied volatility on a short-term option affect the implied volatility of another short-term option with the same strike, but with slightly-longer expiry?
Assuming that the short-...
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Relationship between time decay and gamma
In a paper titled Investing in Volatility published in 1998 by Emanuel Derman, Michael Kamal, Iraj Kani, John McClure, Cyrus Pirasteh, and Joseph Z. Zou, I found the following assertion (on page 9) ...
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1
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926
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Vega in the Heston model
I'm trying to calculate the hedging quantities of the Heston model. I undestand that the replicating portfolio consist of one option, $V = V(S,v,t)$, $\Delta$ stocks and $\phi$ units of the option to ...
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1k
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how to calculate vega in stochastic vol?
since vega is defined as option value changes regarding the implied vol parallel shift, how is vega defined or calculated in stochastic vol models since implied vol is not an input there? thank you.
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How can I calculate bucket vega using dupire local volatility surface?
I am trying to calculate the bucket vega of the portfolio which includes mainly vanilla options and some exotic options. I am pricing the value of portfolio with fdm by using dupire local volatility ...
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2
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541
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Binary Option Valuation With Skew
In searching for methods of valuation of Binary options with skew, I have found two formulas which are at odds. I cannot find any other references to this valuation formula. Should Vega be positive ...
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Can Call and Put Vega be different (for the same strike)
I'm calculating the volatility of an options market (description of market below) by fitting 2 functions:
1. fitting the on book call prices
2. fitting the on book put prices
And I'm getting a ...
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Vega of binary option
I'm calculating the greeks for a hypothetical binary option, and I'm getting a symmetrical parabola for the vega's of both put and call options that are OTM, ATM, and ITM. Both of them dip into ...
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What is vega, really?
Assume for now we are working in a stohastic volatility (SV) setting,
$$
dS_r = \sqrt{v_r} S_r dW
$$
and
$$
dv_r = a(v_r,r)dr + b(v_r,r) dZ
$$
with
$$
dWdZ = \rho dr
$$
Let $C(S_t,v_t,t)$ denote the ...
user34971
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1
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Gamma-Vega Neutral Portfolio Not Possible with Only 3 Options
Let's say we have sold a call option, x, on a share and we have 2 other call options, y & z, with different strikes and maturities to try and achieve a portfolio that is both Gamma and Vega ...
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Calculating Implied ATM Volatility with Vega
Can we calculate Implied ATM volatility with Vega?
Normally, Vega is derived from Volatility, but I wonder the availability of the opposite way.
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Is the vega of a portfolio of a long 0.5 delta and short two 0.25 delta calls positive or negative?
More specifically what I am trying to find out is whether the following relationship is always true or not. Same underlying for the calls, assume the most simplistic assumptions (interest rate = ...
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Why do options market makers make their spread as wide as the corresponding vega?
I've heard that option market makers make their bid ask spread as wide as the vega of the contract they are quoting. If the quoted spread is narrower than the vega of the option it is said that the ...
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0
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Volatility spread of Strangle
It's written in a book by Giles Hewitt : " The bid-offer spread quoted on a Strangle in volatility terms will usually be wider than the ATM spread to the same maturity because strikes away from the ...
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1
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Spread vol for interest rate spread options in normal environment
Suppose I am long spread option with underlying : rate A - rate B. The vega on the option would be positive. But if I want to compute the option vega with respect to individual rates, can I use the ...
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Variance swap correlation trade
I found two highly correlated assets that have spread in 3M realized and implied vol at historical minimum. To go long on this spread I thought of using two variance swaps.
Would it be cheaper to ...
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2
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2k
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Model calibration volatility surface
Let's say i have an exotic structure that is to be vega hedged dynamically. I choose to price it with a local volatility (which means the model prices in your future vega hedges using all options for ...
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1
answer
1k
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Understanding methodology behind the covariance bucket vega
I am reading "Dynamic Hedging" from Mr. Taleb. I understand that you cannot simply aggregate all the vegas of your option portfolio and classify this as the portfolio's vega. So, now I want to ...
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Time weighted Vega for a VIX future contract
How to calculate the time weighted Vega applicable for a 3 month future contract (Expiring in 82 days)? Vega with S&P500 as base
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Expectation of Gamma times S$^2$ in Black-Scholes model
Can somebody prove that:
$$E[S_t^2 \times \Gamma(t,S_t)] = S_0^2 \times \Gamma(0,S_0)$$
where $S_t$ follows a lognormal process as in the Black-Scholes model, and Gamma is the second derivative $\...
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how to simplify Inflation year-on-year option to Zero-coupon option
Belgrade 2004 paper basically proposes that inflation year-on-year volatilities (and hence yoy options) are basically the spread vols between the Zero-coupon vols from (t0 to T) minus the zero-coupon ...
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Is there a simple, intuitive derivation (using Taylor series) of the following approximation to Vega-weighted Implied Volatility?
The approximation is:
$$\sigma \approx \frac{\sum V_j\sigma_j}{\sum V_j}$$
Background information from the first answer to this post:
"Say that you have a portfolio of options with prices $P_j$. ...
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Vega for long long-term ATM call and short short-term ATM call
You are long a long-term ATM call and short a short-term ATM call. The
ratio is adjusted to make the total vega zero. If before expiry of the
short-term option, spot is again at the strike price. ...
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2
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256
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Calculation Error or High Vega? How to interpret?
I am trying to calculate/interpret Vega. For the example below I get a Vega of ~36.36. I have checked my math multiple times, but would appreciate anyone pointing out any error that I have made. If ...
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Iron condor with positive vega
I am backtesting this Iron Condor before earnings.
In the position summary Vega (Mid Quote) is -3.04\$ but in the chart below (IV vs Profit $) it's clearly shown that a decrease in volatility will ...
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How accurate are Black-Scholes estimates of Vega, Volga, Vanna
Wikipedia provides analytical formulas for calculating Greeks. I can get Delta, Gamma, Theta all from Bloomberg. I need Vega, Volga, Vanna for my research. Should I use these analytical formulas for ...
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How is FX cross rates options are priced?
Say I have market for EUR/USD and also USD/CAD, how would EUR/CAD would be priced and hedged in practice? What are good papers/book chapters to read on that? (Assuming basic knowledge already on ...
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