The Vega of an Option Is

question 425

Multiple Choice

The vega of an option is:

• A) The sensitivity of the option value to changes in interest rates
• B) The sensitivity of the option value to changes in implied volatility
• C) The sensitivity of the option value to changes in the time to expiry
• D) The sensitivity of the option value to changes in the price of the underlying

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Definitions:

Normal Approximation

A method of estimating the distribution of a sample statistic using the normal distribution, often applied when the sample size is large.

Binomial

Pertaining to a probability distribution or experiment where each trial has two possible outcomes.

Probability of Success

The likelihood or chance of an event happening that is considered a favorable outcome.

Normal Curve

A symmetric bell-shaped curve that represents the distribution of many types of data; most values remain near the mean and the frequencies decrease further from the mean.