The absolute change in option price in response to a percentage point change in volatility. Kappa is used by traders to capture the sensitivity of option value to a change in implied volatility. For example, a kappa of 0.85 indicates an absolute increase in the option’s theoretical value by 0.85 if volatility edges up by a percentage of 1.0. Likewise, it indicates an absolute decrease in the option’s theoretical value by 0.85 if volatility falls by a percentage of 1.0.
Vega, Tau, and Zeta are also interchangeably used to signify the same meaning of Kappa.
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