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A question on Vega
Hi,Let say I have a big portfolio with many linear as well as non-linear assets. Now I see that, the Vega of that portfolio was negative yesterday but today it became positive. Both are significant in absolute number.My question is what inference can be taken on the portfolio health from this information? What kind rebalancing, if any, I need to do for this portfolio?Thanks for your input.Thanks and regards,
A question on Vega
i don't believe you can make any inference as to portfolio "health" here. putting aside the question of whether or not you are normalizing vega so that you can look at a multi-asset portfolio vega in some meaningful way, all that happened was that you rolled into a vega position by some combination of movements of the underlying instruments. any rebalancing you would need to do would be a function of what "bets" you wanted on in the portfolio, there's not really a right or wrong answer there.
A question on Vega
QuoteWhat kind rebalancing, if any, I need to do for this portfolio?[At the risk of saying the obvious...] To bring Vega negative again you gotta sell some options. (Probably what happened is some options you were short expired/left the portfolio or their vega has weakened). To better understand what is going on you might track long vega and short vega separately, perhaps by expiration/strike buckets (Jan/Feb/Mar, High Strike/Low Strike for example, that would give you 12 numbers you could track daily).
Last edited by acastaldo on December 12th, 2013, 11:00 pm, edited 1 time in total.
A question on Vega
The portfolio is unhealthy.A massive move in vega overnight means your portfolio is highly non-linear (my bet is triggers/barriers and the likes) and the fact that you're unaware and asking here is a clear indication of the portfolio's health.Didn't mean to come off rude, but I guess u got the sharper edge of my KB today...