Questions tagged [vega]

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665 views

Greeks of a Basket Option

I want to estimate delta, vega and gamma for a basket option. This option is a European Call option. The underlying is $S=\omega_1 S_1 +\omega_2 S_2$ Where: $S1$ = stock price of asset 1 $S2$ = ...
4
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0answers
73 views

Spread in Option Quotes

Let's take a look at market-maker's option quote in vol terms: 8.5 / 9.5. In that example bid-ask spread equals 1.0 point of vol. Can anybody clarifying how market-maker choose amount of spread in ...
3
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0answers
116 views

Usages of variance swap

I’m interested in variance swap. Considered from its feature, variance swap is used for betting the (historical) volatility of underlying asset. If we use it for hedge tool of Vega or Volga, does it ...
3
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0answers
91 views

Can the vega of ITM call-options be negative when the distribution of the underlyings returns is negatively skewed?

While calculating european call option prices, using the variance-gamma model formula provided by Madan, Carr & Chang (1998), I noticed that, holding all other things constant, the value of an ITM ...
3
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0answers
274 views

Derivation of the Pnl of a Delta Hedged Straddle and Risk Reversal

In the link below, in the text it states the following equations: Delta-hedged straddle P&L = Volatility Risk-premium ×| Straddle Vega | and Delta-hedged risk-reversal P&L: ...
2
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0answers
45 views

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. ...
2
votes
1answer
254 views

Under what circumstances Veta is positive?

In general, as the option moves towards expiry, its vega is decreasing. Are there circumstances where the veta, i.e. the sensitivity of vega with respect to time, is positive, that is when vega is ...
1
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0answers
38 views

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 ...
1
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0answers
66 views

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
1
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0answers
39 views

How to solve for K when setting the differential of a vega option with respect to K equal to 0?

The question is as follows: Let $v = S_0 \phi(d_1)\sqrt{T}$. Solve the following equation for $K$. $$ \frac{\partial v}{\partial K} = 0 $$ By finding $\frac{\partial v}{\partial d_1}$ and $\frac{\...
1
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0answers
164 views

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 ...
1
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0answers
42 views

Does it make sense to calculate an option price in future (at t+1)?

Often I ask myself whether it makes sense to calculate the price of a Call at t+1 supposing for example that underlying asset does no move i.e. $S_{t+1} = S_{t}$ ...
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0answers
200 views

What is the vega profile of an up-and-out call option? And why is this important in structuring?

I had this question during an interview but I can't seem to find the answer on the internet.
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0answers
495 views

Vega binary option VS Vega Call option

I don't understand why the vega of a call option is not 0 when ATM. Irrespective of the implied volatility the vega of a binary call option when at-the-money is always zero, since you have 50-50 ...
1
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0answers
266 views

Variance Swap Vega

I am currently reading the paper of Derman and al for my master thesis on Variance Swap. At one point one says that "The variance vega is largest when the option is ATM", considering here a call ...
1
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0answers
93 views

Hedge volatility decreases

My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position. Is there a ...
0
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0answers
31 views

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 ...
0
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2answers
104 views

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 ...
0
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0answers
32 views

Vega computation in a stochastic volatility model

What are the possible strategies to compute analytically the Vega (not numerically) in a stochastic volatility model? The goal is to vega-hedge in a generic stochastic volatility model if possible, ...
0
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1answer
127 views

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 ...
0
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0answers
131 views

Higher Vega with ATM options when Spot is higher

Which would have larger vega, an ATM call option at spot 100 or an ATM call option at spot 200. Apparently the answer is the one with ATM at spot 200. I am not sure how you get this answer. Why ...