So to get exposure to Variance risk premia one could use variance swaps, is there a equivalent security for jumps. Hedging against jump but not diffusion risk could allow one to take targeted exposure which could be good for leveraged investor for example. Now I know we could buy Out of the money puts, but that for a fixed known jump size. With unknown jump size, we need to buy a lot of OTM puts which is not really practical? so?
The closest contract to this is gap risk which does trade, either as OTC swap (client looking for a hedge) or embedded inside a structured note (bank looking to recycle risk).
Basic starting point is daily close-to- close observations against a 80-90% putspread, cancel upon payment, equity payer receives a spread for being short the risk (major equity indices this is normally circa 30-40bps p.a., but is quite volatile price)
In the above setting, if asset moves -9.99% in a day, you are fine. If it moves -15%, you will pay 5% etc. Idea of putspread is to allow leverage of up to 10x.