The rate at which the vega of an option will react to volatility in the underlying market. It is the second order derivative of the option value with respect to volatility. It demonstrates the convexity of vega. A positive value for vomma indicates that a percentage point increase in volatility will result in an increased option value, known as positive vega convexity.
Vomma is part of the group of measures known as the "Greeks" (other measures include delta, gamma and vega) which are used in options pricing.
Vomma is considered one of the more important option pricing Greeks, especially for options that are sensitive to changes in the underlying market. Investors with long options should look for a high, positive value for vomma, while investors with short options should look for a negative one. It is also useful in a delta hedging strategy under traditional methods, but is less useful in dynamic delta hedging.
Vomma calculations form an integral part of the Black-Scholes model.
Investment dictionary. Academic. 2012.
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