Value date<\/p>\n
1. In the Eurodeposit and FX markets, the delivery date for funds traded. For the spot market it would be the spot date, ordinarily two business days after the transaction. For the forward market it would be a future delivery date. In the bond market (usually), the date on which the buyer begins to earn interest.
\n2. The date on which a bond buyer begins accruing interest on the bond. This may be the same as the settlement date.<\/p>\n
Vanna<\/p>\n
The sensitivity of vega (also known as kappa) to a change in the underlying price. Hence, (a) the first derivative of vega (kappa) with respect to a change in the underlying, (b) the first derivative of delta with respect to a change in volatility, and (c) the second derivative of option value with respect to a changes in volatility and underlying. <\/p>\n
Variance swap<\/p>\n
Definition: A contract that pays off an amount proportional to the difference between the realized variance over a specific period of time and the contractual variance.
\nExample: If the realized, annualized standard deviation of the rate of return on the S&P 500 is 40% and the contractual variance is 9%, then the net payoff on the side receiving the realized variance on $100 million notional value for half a year is $3,500,000 = $100,000,000 x (0.42-0.09) x 0.5.
\nApplication: The variance swap is a potential tool for managing the sensitivity of an option book to volatility risk. <\/p>\n
VDAX<\/p>\n
The DAX volatility index, which measures the Black-Scholes implied volatility of a basket of DAX options. The Deutsche B\u00f6rse has published it since 7\/97 <\/p>\n
VIX<\/p>\n
The ticker symbol for the Chicago Board Options Exchange Volatility Index.<\/p>\n
Vol-Vol<\/p>\n
The volatility of volatility. This presupposes that volatility is a random market risk factor, which is a lot more reasonable than the original assumption of the incredibly robust Black-Scholes model, that it is known and constant. <\/p>\n
Volatility<\/p>\n
The annualized standard deviation of the percentage change in a risk factor. <\/p>\n
Volatility convexity<\/p>\n
Definition: The sensitivity of vega = dvalue\/dvol (a.k.a. kappa) as a function of volatility to a change in volatility, also known as “dvega\/dvol”, where dvega\/dvol = d2value\/dvol2. Volatility convexity is to vega (kappa) as gamma is to delta and convexity is to duration. Also known as “vomma”.
\nApplication: The volatility convexity shows the deviation from a vega (kappa) neutral hedge when the volatility moves, just as the gamma or convexity shows the deviation from a delta or duration neutral hedge when the underlying price or yield moves. <\/p>\n
VOLAX Future<\/p>\n
A futures contract based on the VDAX volatility index for the DAX stock index. <\/p>\n
Vomma<\/p>\n
The sensitivity of vega (also known as kappa) to a change in volatility. Hence, the second derivative of option value with respect to a change in volatility. <\/p>\n
Vulnerable option<\/p>\n
1. “[An option] on a defaultable instrument, subject also to their issuer’s default risk. Ex: A put issued by a shaky bank on a corporate bond issued by a third party.”
\n2. An option “subject to the additional risk that the writer of the [option] might default.”<\/p>\n","protected":false},"excerpt":{"rendered":"
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