Volatility Swap

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Volatility Swap

A forward contract on the volatility of a security. The underlying of a volatility swap is usually the volatility of a currency. A volatility swap allows the investor to speculate on volatility, just as a trader might speculate on the price of a stock.
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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.
The type of control was previously available to only large institutions in the often opaque and unregulated over-the-counter volatility swaps market.
Summary Statistics for the Profit and Loss of Variance and Volatility Swaps This table reports the summary statistics for two types of forward contracts.
Similarly, a volatility swap writer selling one contract from January 2, 1986 to end of November 2004 obtains a cumulative profit of $84,529,002.
Thus, there is strong evidence that variance and volatility swap rates generally favor the swap writers.
Mark Friedman, Principal, AM Investments, remarked about Imagine 7's expanded instrument support: "The asset class coverage in Imagine 7 is excellent as it now supports volatility swaps and options on realized variance.
The company, acting as market-maker, provided two volatility swaps in October for Centaurus Energy LP, a Houston-based hedge fund.
Koch Supply & Trading LP, using its market knowledge to focus on creating innovative risk management strategies, has completed its first-ever oil price volatility swap contracts.