Asked by dorian hawthorne on Apr 25, 2024
Verified
Vega is defined as
A) the change in the value of an option for a dollar change in the price of the underlying asset.
B) the change in the value of the underlying asset for a dollar change in the call price.
C) the percentage change in the value of an option for a 1% change in the value of the underlying asset.
D) the change in the volatility of the underlying stock price.
E) the sensitivity of an option's price to changes in volatility.
Vega
The response of option price to a change in the standard deviation of the underlying asset.
Option's Price
The price at which a specific derivative contract can be exercised, determined by factors like the underlying asset's price, time to expiration, and volatility.
Volatility
The rate at which the price of a security increases or decreases for a given set of returns.
- Understand the concepts of delta and vega in options trading.
Verified Answer
CC
Christine Cleaves8 days ago
Final Answer :
E
Explanation :
Vega measures the sensitivity of an option's price to changes in the volatility of the underlying asset. It indicates how much the price of an option is expected to change with a 1% change in the implied volatility of the underlying asset.
Learning Objectives
- Understand the concepts of delta and vega in options trading.