VOLGAMMA

mrblue · April 6th, 2005, 4:20 pm

Could anyone indicate me a paper explaining the relationship between the implied volatility and gamma of options? I think this greek is usually called volga. I need even only an intuitive explaination. Thank you very much

frichetti · April 6th, 2005, 4:30 pm

Volga is sensitivity of the Vega with respect to implied vol. It is sometimes referred to as Gamma of Vega.Is that what you're really looking for dude ?Frichetti

daveangel · April 6th, 2005, 7:25 pm

I dont know if you need a paper to explain how option gamma varies with volatility. Just get the formula for gamma from any options text and plot it out. For a BS model on an index for example gamma = exp(-qT)*n(d1)/(vol*sqrt(T)*S)whered1 = (ln(F/K) + 0.5*vol*vol*T)/(vol*sqrt(T))and n() is the normal density function.On the other hand if you are talking about volga (or vol gamma) then that is a different kettle of monkeys.

mrblue · April 7th, 2005, 4:07 pm

no mate i just needed an intuitive explaination of how gamma changes when implied volatility moves depending on the option is out/at/in the money. Thank you

JamesH83 · April 7th, 2005, 5:56 pm

well the higher the implied vol / time to expiry the lower the curvature at the ATM strike and the higher the curvature at the OTM / ITM strikes.So when implied vol rises, gamma of ATM options falls while the gamma of OTM/ITM options rises. correct? this relationship isnt volga though. volga or (vomma) is the convexity of the price of the option with respect to implied vol.

daveangel · April 7th, 2005, 8:06 pm

Quotethis relationship isnt volga though. volga or (vomma) is the convexity of the price of the option with respect to implied vol. yes - i thinkwe have established what vol gamma is ...

JamesH83 · April 7th, 2005, 8:49 pm

oops sorry dave didnt mean to repeat and uspet you

daveangel · April 8th, 2005, 6:28 am

Quoteoops sorry dave didnt mean to repeat and uspet you this is not an undergraduate esay that you need to pad out.QuoteThe most valuable of all talents is that of never using two words when one will do. ~Thomas Jefferson

JamesH83 · April 8th, 2005, 1:26 pm

i was just trying to answer mr blue's question the best I could.Is that okay now Mr Blue?