In a simplified world you can assume that the var swap is replicated by a continuous set of calls and puts and interest rates are equal to zero. So your PNL is only sensitive to the volatility. But in reality, you don't have a continous set of options, and your PNL is sensitive to the forwards so rates and div have an impact on your pricing. How do rates and div impact the pricing of the var swap? And why, intuitively? Also what is the signe of the delta of a var swap?

Thank you!


1 Answer 1


See this article for the impact of jumps on varswaps


In general as soon as you leave the assumption of a continuous diffusion the price of varswap is no longer model independent.


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