Why Option Vega Does Not Determine Implied Volatility

Summary

The document distinguishes an option’s implied volatility (IV) from its vega. IV is an input to an option pricing model, while vega measures how much the modeled option price changes when IV changes. A larger vega for one option therefore does not show that its IV is higher than another option’s; vega also depends on factors such as the underlying asset’s level and the option’s other characteristics.

The discussion adds that vega generally rises with IV because vomma, also called volga or vega convexity, is positive. This relationship concerns how an option’s sensitivity changes as its own IV changes; it does not establish a ranking of IVs between different options. The explanation is qualitative and gives no numerical example or model-specific qualifications, so it serves as a conceptual distinction rather than a calculation procedure.

Key ideas

• Implied volatility is an input to an option pricing model, while vega is a price sensitivity to that input.
• A higher vega does not imply that an option has higher implied volatility than another option.
• Vega depends on multiple factors, including the underlying asset’s level.
• Positive vomma means an option’s vega generally increases as its own implied volatility rises.

Tags

# Does higher vega imply higher IV and vice versa


# Does higher vega imply higher IV and vice versa












If an option A has higher vega than option B, does that also mean that A has a higher IV than B? I understand that by definition, a higher vega means that A's price is more sensitive to its IV than B.

But can we conclude that A has higher IV than B also?

## Answer by frickskit (score 6, accepted)

https://quant.stackexchange.com/a/16774

Simply put, no. Vega depends on a variety of factors (including the level/price of the underlying asset). However, vomma/volga/vega convexity (whatever you want to call dVega/dIV) is always positive. So as IV increases, the vega of an option increases - I think this might have been what you were getting at.

It's important to understand that IV is an input to a pricing model while the greeks are the sensitivity of options prices to various input factors (as @vonjd correctly states).

## Answer by vonjd (score 4)

https://quant.stackexchange.com/a/16773

IV is one of the inputs for your option pricing model, vega measures the actual impact (e.g. in Dollars, Euros...) of any change in IV.

Intuitively IV is the price of the option while vega is the sensitivity to IV.

Bottom line: There is a clear distinction!

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.