According to the BSOP model, the value of an option is dependent on five variables: the value of the underlying asset, the exercise price, the risk-free rate of interest, the implied volatility of the underlying asset, and the time to expiry of the option. These five variables are input into the BSOP formula, in order to compute the value of a call option (the value of an equivalent put option can be computed by the BSOP model and put-call parity relationship). The different risk factors determine the impact on the option value of the changes in the five variables.
The 'vega' determines the sensitivity of an option's value to a change in the implied volatility of the underlying asset. Implied volatility is what the market is implying the volatility of the underlying asset will be in the future, based on the price changes in an option. The option price may change independently of whether or not the underlying asset's value changes, due to new information being presented to the markets. Implied volatility is the result of this independent movement in the option's value, and this determines the 'vega'. The 'vega' only impacts the time value of an option and as the 'vega' increases, so will the value of the option.
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