Vega of a straddle

Quantitative Finance Level 3

The ATM straddle with 5 days to expiry has a vega of 0.2.

What is the vega of the ATM straddle with 20 days to expiry?

0.8 0.2 0.05 0.1 0.4

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Calvin Lin by Calvin Lin

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1 solution

Caleb Townsend
Mar 6, 2015

For an ATM straddle, ν ∝ T \nu \propto \sqrt{T} where T T is the time to expiry. ν = ν 0 × T T 0 \nu = \nu_0\times\sqrt{\frac{T}{T_0}} ν = 0.2 × 20 5 = 0.4 \nu = 0.2\times\sqrt{\frac{20}{5}} = \boxed{0.4}

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