Vega: Difference between revisions

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

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 {{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.