Variance Swap

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Variance Swap

A forward contract on the variance of a security. The variance is the square of the standard deviation. As a result, the payout on a variance swap is higher when the volatility increases. A variance swap allows the investor to speculate on volatility, just as a trader might speculate on the price of a stock; it is most advantageous when the volatility is or is expected to be high.
References in periodicals archive ?
The graduate textbook explores variance and volatility swaps for financial markets with underlying assets following the Heston model, the valuation of variance swaps for stochastic volatilities with delay, a semi-Markov modulated market consisting of a riskless bond and a risky stock, variance and volatility swaps for volatilities driven by fractional Brownian motion, and explicit option pricing of a mean-reverting asset in energy markets.
Given the feedback we've received from customers, we think they will embrace this contract change, which now more closely aligns our S&P 500 Variance futures contract with OTC variance swaps.
They have removed the need for investors to trade volatility through variance swaps or futures".
Zou, 1999, "A Guide to Volatility and Variance Swaps," Journal of Derivatives 6, 9-32.
Bronson Plocus joins Weeden as a volatility trader with more than 10 years experience trading listed and OTC options, variance swaps, ETF, and single stock products.
Expanded Deriv/SERV to support interest rate swaps and swaptions, equity swaps and variance swaps to deliver automation to a broad range of products in the OTC derivatives market.
New Contract Mirrors Quoting Conventions and Economic Performance of Over-the-Counter S&P 500 Variance Swaps
In 2005, Deriv/SERV expanded to support interest rate swaps and swaptions, equity swaps and variance swaps.
Index listed and OTC options in addition to all delta-1 products (creation/redemption, dividend swaps, total return swaps, correlation swaps, variance swaps, EFP)
The S&P 500 Variance futures contract, like over-the-counter (OTC) variance swaps, allows users to trade the difference between the implied and realized variance of the S&P 500 Index.
The strategy will be short near term variance swaps on a basket of domestic and international indexes and will hedge the exposure with longer-dated forward start swaps.