I used Derman(1999) method, to calculate the fixed Kvar for Variance Swaps using actual option price data. The first Pic Shows the outcome. (ignore the 0s).
Now the profit and loss of short var swaps is totally wrong, the Sharpe ratio is 2.
I want to ask how the realized Var is actually computed, to calculate payoff. Do I need to annualise it, currently I multiply RealisedVar with 365/45. as Maturity is 45 days. P&L is depends on the multiplication factor. Kvar is not anualised so why should realized var be?