EFTA Document EFTA01365340

3 December 2013 US Derivatives Spotlight Understanding volatility, rate, and dividend yield risks for long-dated calls In this section we provide a more in-depth look at how implied vols evolve after a spot rally and also how changes in rates and dividends impact the price of calls. Vega implied volatility sensitivity Buyers of options are long vega, and an increase in implied volatility will result in an increase in the price of a call option. Vega is proportional to time-to- maturity: