Introducing a new Greek letter

[pumpkinpie]

My boyfriend is getting a master's degree in analytical finance. It has some pretty advanced math, like linear algebra and partial differential equations. I have a lot of experience with those from advanced physics classes, so when he talks about his homework, I can at least understand the math, if not the theory.

Yesterday he was talking about a new course he's taking. It has a lot of partial diffeq's, and he was telling be about the 5 "Greeks." That is, the 5 Greek letters used over and over in the course, and the terms they represent. He couldn't come up with the fifth. He said "it represents volatility" so I said "it must be Nu, because the lowercase Nu looks like a v!" He said, "no, that's not it and kept thinking." After a minute he remembered--"Vega!"

I said, "That's not a greek letter! I know the Greek alphabet front and back from all my years of physics, plus being in a sorority. Vega is not one of them!" (he pronounced it vay-ga, by the way.)

But he swore it was Vega! "That's what they call it in all the books!" I said, "ok then, finance people invented a new Greek letter!" And I just laughed.

So I wonder where that would fit in the alphabet?

alpha beta gamma delta epsilon zeta eta theta iota kappa lambda mu nu xi omicron pi rho sigma tau upsilon VEGA phi chi psi omega?

[kleindoofy]

... I said, "That's not a greek letter! ...

Wrong. (Sorry.) It's not in the normal Greek alphabet, but it is in the epigraphic alphabet. It looks almost like an "F" and is pronounced like a "V."

[pumpkinpie]

... I said, "That's not a greek letter! ...

Wrong. (Sorry.) It's not in the normal Greek alphabet, but it is in the epigraphic alphabet. It looks almost like an "F" and is pronounced like a "V."

I've never heard of the epigraphic alphabet. Tell me more!

[01101001]

Does the course have anything to do with option markets?

From a Management course syllabus:

Sensitivity analysis

Delta, gamma, theta, vega, rho. How the option price depends on the inputs. Extreme values. Neutral positions.

Or, from Software tools for stock options traders, FAQ:

What do Delta, Gamma, Theta, Vega and Rho mean?

Delta measures the theoretical sensitivity of the option's price to the underlying price. A Delta of 50 suggests that, if the underlying were to change by 1 point, the option price should change by 0.50 points.

Gamma measures the theoretical sensitivity of the option's delta to the underlying price. A Gamma of 3 suggests that, if the underlying were to change by 1 point, the option's delta should change by 3.

Theta measures the theoretical sensitivity of the option's price to the time remaining until expiry. A Theta of -0.10 suggests that, all other things being equal, the price of the option should be 0.10 less tomorrow.

Vega measures the theoretical sensitivity of the option's price to the volatility. A vega of 0.05 suggests that, if the volatility were to increase by 1, the option price should increase by 0.05.

Rho measures the theoretical sensitivity of the option's price to the interest rate. A Rho of 0.01 suggests that, were the risk-free rate to increase by 1 percentage point, the option price should increase by 0.01.

Or, story from The Business Line:

HAVE you wondered why these option premiums keep changing but never in the same proportion of the change in the underlying stock? The knowledge of the Greeks will help in explaining why the option premium changes the way they do.
[...]
Vega for Volatility

This will tell you how much your option premium will increase or decrease with increase/ decrease in the level of its volatility (IV).

I'd like to know why "vega" is called a Greek, but I'm too tired to Google right now.

Edit: Nope. Too curious. Not too tired.

From Volitility and the Greeks (a good list of definitions):

• The Greeks - Beta - Delta- Gamma- Lambda- Rho- Theta - Vega (kappa, omega, tau)

So, I'm thinking vega used to be called, or is called by others, kappa, omega and/or tau. At least it was Greek. I still don't know how it became known as vega.

This page has vega symbolized by a lower-case nu.

Could it be because Vega is the 5th brightest? True? Do we have an astronomy connection here? From Black-Scholes in the HP12C Galaxy (PDF):

Vega is the sensitivity of the option price to the volatility. Also, our solar system is speeding through space in the direction of Vega, the fifth brightest star in the sky, of magnitude 0.0, in the constellation Lyra (called Vultur cadens or Swooping Vulture two centuries ago). The Arabs' title for the constellation was Al Nasr al Waki (referring to the swooping Stone Eagle of the desert). Anyway Vega derives from the Arabic Waki and is definitely not Greek, but the sensitivities are collectively called "greeks".

[papageno]

I knew that letter as digamma.

[kleindoofy]

I knew that letter as digamma.

Yup! That's exactly what I meant. Thank you for the clarification.

[Vega115]

A thread about....me?!


"You like me! You really like me!!"

I'm just kiddin! I learned most of the greek alphabet last year mainly because my global teacher was like, a founding father of a frat in his college (though his is not greek at all...thats besides the point) and recited the alphabet almost daily. This is the same teacher who claimed that Planet X was a scientifically proven scientific theory.


Wouldn't that be contradictory though, as theories are not fully "proven"...just supported heavily by experiments? whatever.

[mopc]

Man, the letter that looks like an F is the digamma. I never heard of a vega. In fact the digamma disapeared precisely because the phoneme /v/ faded away from the Greek language by the 7th century, so the very word "vega" would be unphonetic in Classical 4th century Greek.

What does this vega look like? I´ll google around and find more.

Reminds me of Contact: "hail to Vega, hail to Vega, hail to Veeegaaa"

[mopc]

Well, Vega was no Greek letter. Ever. Other extinct letters were, aside from digamma, he qoppa and the stigma, but no vega; this "vega" is used in certain branches of economic mathematics as one of the "five Greeks", which serve to calculate "factor sensitivities" whatever that is...

The texts I found on the net explicitly say that vega is an exception because it´s not a Greek letter at all, they don´t say why this vega was invented though.

[Disinfo Agent]

Man, the letter that looks like an F is the digamma.

Also called "vau" ("fau"?) or "wau", sometimes.
There is no letter vega in the Greek alphabet.

Other extinct letters were, aside from digamma, he qoppa and the stigma, but no vega; [...]

"Sami"?

[pumpkinpie]

What does this vega look like? I´ll google around and find more.

It looks like a lower-case nu because it is a lower-case nu. The finance people just "call" it vega. That's what made me laugh!!

[Disinfo Agent]

What does this vega look like? I´ll google around and find more.

It looks like a lower-case nu because it is a lower-case nu.

Or a funky-looking v. :wink: