Vega

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The JC looked up and raised his eyes up and out the window. Softly, he said to himself, “I wonder whatever happened to Suzanne Vega?”

The countess Birgit von Sachsen-Rampton looked dismissively at him, and snorted, “What?”

The JC smiled, shook his head and muttered to himself. “Of course, you are right, my dear. No, no I don’t. I really don’t care what happened to Suzanne Vega at all. And he chuckled, went back to the dishes, happy at the reminder of what a lucky fellow he was.

***

As all portfolio managers who have ever bought an apartment know, in the immortal words of Californian songstress Suzanne Luca:

My name is Vega

I live on the second floor

I lives upstairs from you

Yes, I think I've seen you before.

Vega is, technically, “the rate of change in volatility of an option”, meaning the greater the volatility the more vega you have. Volatility is affected by a number of things, but most commonly by leverage - or borrowing money from the bank to make more of a speculative investment than you can actually afford. Hence the smarty-pants reference to apartments for, if you’ve ever bought one with the assistance of mortgage finance, you’ve amped up your vega.

Vega is also one of the Greeks. As classicists are fond of reminding the youngsters, Vega is not actually the name of any Greek letter (the Greek letter “v” is called nu), but this only goes to show portfolio managers tend to know more about Canadian singer songwriters than they do about classical typography. And if you didn’t know that you’ve got bigger things to worry about.

Anyway, vega is relevant, if you’re really interested, in the calculation of Black-Scholes formulae for pricing European options, but it is more relevant in that it is frequently (and some might say, wilfully) mistaken for alpha by uninspiring fund managers and their associates. If you ever see the expression leveraged alpha you may be fairly sure there’s some chicanery (or at the very least buffoonery) at work, and the victim of it is most likely to be you.

At which point, you’ll be solitude standing.

See also

• Greeks - the home of all things Greek on this site. It’s our own little Athens.
• Alpha
• Beta
• Delta
• Nu - a trick for young players — and those with a degree in Classics.
• Omega — the end of days, and the right time for backtesting
• Vega — not really a Greek at all, but a maudlin singer-songwriter
• Enhanced beta
• Leveraged alpha