Vega of an option formula

Tags: options risk management valuation and pricing

Description of the Vega of an option formula

Formula for the calculation of an options vega. Vega is the sensitivity of an option's price to changes in the volatility of its underlying. It is identical for both call and put options.

Formula

ν = S ϕ (d 1) \sqrt{t}

w h e r e : ϕ (d 1) = \frac{e^{- \frac{d 1^{2}}{2}}}{\sqrt{2 π}};

d 1 = \frac{l n (\frac{S}{K}) + (r + \frac{σ^{2}}{2}) t}{σ \sqrt{t}}

Symbols

K

Option

N

Standard normal cumulative distribution function

r

σ

of the

S

Price of the

t

Time to option's expiry

Additional information related to this formula

Related definitions from the glossary of financial terms

Gamma • Option • Risk-free interest rate • Vega

Related calculators

Option strategy calculator • Pricing of an option (Black & Scholes)