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As the other comments already suggest this topic has been discussed many times and the references / links that are provided are far more detailed than my quick solution below. In the construction / replication of a variance swap one tries to achieve a CONSTANT dollar gamma. This is done by buying a strip of calls and puts, weighted by 1/K^2 as you ...


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Your Vega of 188.48 is correct, in the sense that matches my calculation. What it means is that if the volatility increase by 1 (i.e. by 100 percentage points, from 19.14% to 119.14%) the call will increase by 188 dollars. Obviously that is an unrealistic move. More realistically if the volatility increases by 0.01 (i.e. 1 percentage point, from 19.14% to ...


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For How VIX works you can read this wonderful blog : http://onlyvix.blogspot.com/2011/09/intuitive-understanding-of-vix-formula.html It provide wonderful non mathematical explanation of the how vix is actually computed. Now comes to your last answer why vix is inversely related to market movement ? In simple words, if market is more volatile then ...



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