The sensitivity of a convertible’s value to changes in the volatility of the underlying stock (mathematically, it is a first-order partial derivative of the convertible price with respect to changes in volatility). Typically, it is expressed as the change in the fair value of the convertible due to a one percentage point increase in “assumed” stock volatility.

The theoretical value of a convertible is conventionally calculated taking into account a number of factors including: (1) A credit spread over a money-market rate (such as LIBOR or Treasury rate) that will be used to construct the discount rate at which coupon payments and face value are brought back to present. (2) Dividends on the underlying stock, up to maturity date. (3) A volatility assumption for the underlying stock. In this sense, vega measures the sensitivity of fair value to changes in the assumed value of stock volatility. In general, as the convertible becomes closer to being at-the-money, its value gets more sensitive to changes in assumed volatility.