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Let us consider that we are looking at issuing some varswaps or volswaps on some FX rate. By longer term I mean something longer than 3 months. Different from this time two years ago, now the interest rates are much more volatile. Is there a paper detailing how stochastic rates impact the valuation of varswaps and volswaps? What kind of rates models are used in the industry for such products? For what maturities does it make sense to add a stochastic rates model to the local or stochastic volatility model to price and risk-manage these instruments?

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I can't post this as a comment yet (not enough reputation), but for the impact of stoch rates on varswaps you can take a look at his:

Horfelt & Torne, The value of a variance swap - a question of interest

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  • $\begingroup$ Looks promising! $\endgroup$
    – fwd_T
    Dec 6, 2022 at 11:45

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