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  • The Vega of a derivative portfolio is the rate of change of the value of the portfolio with the change in the volatility of the underlying assets. It can be expressed as:
    • V= , where Π is the value of the portfolio, and σ is the volatility in the price of the underlying.      
  • For European options on a stock that does not pay dividends, Vega can be found by:
    • V=S0√TN’(d1), where S0 is the present stock price, T is the time to expiration expressed in years and N’(d1) is given by:

  • The Vega of a long position is always positive
  • A position in the underlying asset has a zero Vega
  • Thus its behavior is similar to gamma
  • Vega is maximum for options that are at the money

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