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

Question

Quizplus · Accepted Answer

Vega measures the sensitivity of an option's value to changes in implied volatility. A higher vega implies that the option's value is more sensitive to changes in volatility, while a lower vega indicates less sensitivity to changes in volatility. It has nothing to do with interest rates, time to expiry, or changes in the price of the underlying asset.

The Vega of an Option Is