Definition of Kappa
What is Kappa
Kappa is a ratio that measures the rate of change in an option’s price to the change of implied volatility in the underlying security. In effect, it is a measure of an option’s sensitivity to volatility.
With an option that has a kappa of 0.10, if implied volatility changes by 1 percent, the option's value is expected to change by 10 cents. Long-dated options have positive kappa while options nearing expiration have negative kappa.
Kappa is useful for hedging against changes in implied volatility. Changes in kappa can be measured by using vomma, a minor Greek.
Kappa is one of the first-order Greeks or major Greeks. Kappa is also known as tau, vega or zeta.
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