How Does the “Greeks” Measure Vega Quantify Volatility Risk for a Market Maker?

Vega measures the sensitivity of an option's price to a one-percent change in implied volatility. It quantifies the volatility risk that a market maker is exposed to.

A high Vega means the option's value will change significantly if market volatility shifts. Market makers with a large net Vega exposure face substantial risk and will typically widen their RFQ quotes to compensate, or actively trade to reduce their Vega to a more neutral level.

Managing Vega is crucial for profitability.