Vega: Difference between revisions
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As all portfolio managers who have ever bought an apartment know, in the immortal words of Candadian songstress Suzanne Luca: | As all portfolio managers who have ever bought an apartment know, in the immortal words of Candadian songstress Suzanne Luca: | ||
{{Box|My name is [[Vega]]<br | {{Box| | ||
I live on the second floor<br | My name is [[Vega]]<br> | ||
I lives upstairs from you<br | I live on the second floor<br> | ||
Yes I think I've seen you before}} | I lives upstairs from you<br> | ||
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, 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 | [[Vega]] is also one of the {{tag|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 buffoonery at work, and the victim of it is most likely to be you. | 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 buffoonery at work, and the victim of it is most likely to be you. | ||
Revision as of 18:44, 2 February 2016
As all portfolio managers who have ever bought an apartment know, in the immortal words of Candadian 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 buffoonery at work, and the victim of it is most likely to be you.