Kappa (also known as Vega, which is much more widely used) is used in the options market to measure the sensitivity of an option to implied volatility. Kappa measures how much an options premium (price) will change in currency terms for a one percentage point change in the option’s implied volatility. Assuming an option with a Kappa of 0.10 and 20% implied volatility trades with a EUR1.20 premium, if implied vol rises by one percentage point, the options premium will increase to EUR1.30.

Related terms