What is 'Kappa'

One of the "Greeks," kappa is the ratio of the dollar price change of an option to a 1% change in the expected price volatility (also called implied volatility) of the underlying asset. Kappa tells investors how much an option's price will change for a given change in implied volatility, even if the actual price of the underlying stays the same. Kappa is higher the further away an option's expiration date is and falls as the expiration date approaches. Just as individual options each have a kappa, an options portfolio has a net kappa that is determined by adding up the kappas of each individual position.

Explaining 'Kappa'

A positive kappa is associated with a long option and means that the option becomes more valuable as volatility increases, and a negative kappa is associated with a short option and means the option becomes more valuable as volatility decreases. Kappa, also called vega, is one of the most important options Greeks. Other important options Greeks include delta, which measures the impact of a change in the underlying asset's price; gamma, which measures the rate of change of delta; and theta, which measures the impact of a change in time remaining to expiration.

Further Reading

Kappa ratios and (higher-order) stochastic dominance
link.springer.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

Visualization of chaos for finance majors
papers.ssrn.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

A PCR‐RFLP test to detect allelic variants of the Bovine Kappa‐Casein gene
www.tandfonline.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

A bootstrap method for comparing correlated kappa coefficients
www.tandfonline.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

The angle kappa in strabismic individuals
www.tandfonline.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

Death to Kappa: birth of quantity disagreement and allocation disagreement for accuracy assessment
www.tandfonline.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

An improved Fuzzy Kappa statistic that accounts for spatial autocorrelation
www.tandfonline.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …

Using pooled kappa to summarize interrater agreement across many items
journals.sagepub.com [PDF]
… Cohen's (1960) kappa (k) was used as a measure of rater agreement because it possesses a number of desirable proper- ties … Excellent levels of rater agreement were obtained for each of the accounting (k = .76, z = 6.3), economics (k = .83, z - 10.4), finance (k = .87, z = 9.4 …