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Total Posts: 1
Joined: Oct 2017
Posted: 2017-10-08 22:26
Hi guys,

I've been trading linear products for a little while now and trying to step into non-linear products in the near future.

One market maker convention I have been trying to understand and wasn't able to get a clear answer recently is that, I've noticed a lot of market makers like to use phrases like $xx mm vega to describe a position in a swaption. I have the sense that it measures the size of the flow but not quite sure how this number is generally derived, and why not say $xx mm gamma?

If there is another post or article that talks about these general conventions, I'd love to read and thanks in advance!


Total Posts: 47
Joined: Jun 2017
Posted: 2017-10-08 23:52
Certainly gamma and vega don't always have the same sign. Maybe the guy is just long a calendar with positive theta (i.e. negative gamma) where vega is, say, $99mm, and he feels that this is the relevant number to describe the position.

Or maybe it's indeed a convention - in which case I would like to know the answer as well.


Total Posts: 866
Joined: Oct 2008
Posted: 2017-10-10 10:19
In my experience, vega is normally used by mkt-makers to refer to longer-dated exposures (areas other than top left). That's why it's used to describe aggregate flow in those types of products.

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