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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In addition, support for equities has expanded with the inclusion of equity volatility swaps.
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.