Explain the Concept of ‘Vega-Hedging’ in Simple Terms.
Vega-hedging is the process of adjusting a portfolio to make its value insensitive to changes in the implied volatility of the underlying asset. Since Vega measures the option price sensitivity to volatility, a market maker achieves Vega-neutrality by taking offsetting positions in options or other volatility-sensitive instruments to balance the portfolio's total Vega to zero.
