Scaling vega across maturities

MediumFinance & Derivatives~3m

An at-the-money option with 1 year to expiry has vega $0.40$ (its price rises $0.40 per one-point rise in implied volatility). Using how vega scales with maturity for at-the-money options, estimate the vega of an otherwise-identical option with 4 years to expiry. Give a decimal to two places.

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ATM vega scales with $\sqrt{T}$ , not $T$ .
Vega ratio $=\sqrt{4/1}=2$ , so $0.40\times2$ .

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0.8 (± 0.02)

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Scaling vega across maturities

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