# Questions tagged [variance-swap]

Variance swaps are over-the-counter financial derivatives that allow investors to hedge their exposure to the magnitude of possible price movements of underliers, such as exchange rates, interest rates, or stock indexes. [Wikipedia: Variance Swap](https://en.wikipedia.org/wiki/Variance_swap)

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### MC pricing of varswap and volswap in Variance-Gamma model

I am trying to price a discretely monitored (daily) varswap and volswap in the variance gamma model (see Madan, Carr and Chang paper for more details about VG model). I expect the values to be close ...
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### Variance Swap Valuation

I am trying to find the future volatility of a variance swap. I have a trade which has already commenced and i am valuing it midway. I can observe the past variance till my valuation date but i am not ...
1 vote
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### Emanuel Derman Volatility Approximation [closed]

Can someone please explain Emanuel Derman's volatility approximation as given below? Under Linear Skew If skew is assumed to be linear, at least for strikes relatively close to the money, then Derman’...
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### How to trade forward volatility?

What would be the best way to trade forward volatility or term structure? One way, I think of is through gamma neutral calendar spreads. The problem with this approach is "change of ATM" and ...
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### Calendar spreads through variance swaps

Please refer to this image from the famous paper JUST WHAT YOU NEED TO KNOW ABOUT VARIANCE SWAPS by Bossu et al. 2005 (page 6). The underlined part, is there a typo? "if the 2-year IV is above 20....
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### Strike of a Variance Swap in a Sticky Strike World

Imagine there exists a typical negative skew for some underlying I want to price a variance swap on. Critically, let’s say we are in a sticky strike world (the vols of each strike will not change with ...
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### Smile Dynamics - forward variance

I was reading Smile Dynamics II by Lorenzo Bergomi. It is clear to me that on page 2 $$V_t^{T_1,T_2}=\frac{(T_2-t)V^{T_2}_{t}-(T_1-t)V^{T_1}_{t}}{T_2-T_1}$$ is the fair strike of a forward-starting ...
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### Derive the price of log contract

I am reading the Neuberger [1999] Log Contract paper and really confused on the log contract. So if the payoff is $\ln(S_T)$, then we can easily solve the price of such derivative: f_t^s = e^{-r(T-t)...
393 views

### Market price versus theoretical price of varswaps

When I traded varswaps several years ago, for some indices there was a significant mismatch between market price and theoretical price. The theoretical price assumes continuous monitoring and infinite ...
1k views

### Different types of swaps and generalized pricing structure - correlation swap, variance swap, volatility swap, gamma swap, etc

I am very new to derivatives pricing, and I am currently trying to learn these on my own. As far as I can tell, most of the derivatives that are simple (in the sense of having a constant strike that ...
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1 vote
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### Practical Effect of Time-Decay on Variance Swaps?

I want to implement a long vol hedging strategy by rolling spot variance swaps every month. This would be done through replicating spot VIX using the definition of VIX as a portfolio of OTM one-month ...
1k views

### Capped Variance Swap // Fair volatility using replication portfolio

I know that the Heston volatility model should be the best approach for computing fair volatility on capped variance swap but is there a way to estimate it from replication portfolio? What I call ...
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### Structured question on mark-to-market value of a variance swap

anyone can provide solution or some idea to the following question? thanks
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### VIX and Realised Volatility Scaling

I have calculated the VIX implied volatility according to the CBOE Whitepaper: \begin{equation*} \sigma^2 = \frac{2}{T} \left(\sum_i \frac{\Delta K_i}{K_i^2} Q(K_i) e^{rT} \right) - \frac{1}{T} \...
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### Deriving the VIX formula

I am having trouble filling in a few steps in the derivation. From Martin (2017), we get the following assumptions: Constant continuously compounded rate $r$; The underlying doesn't pay dividens; ...
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### Explicit formula replication of variance swap using vanilla option under black and scholes model with nonzero risk-free rate and nonzero dividend [duplicate]

I didn't find the formula for the following portfolio (variance swap replication) with nonzero risk-free rate and nonzero dividend under black and scholes model : (1) I found formula and proof only ...
339 views

### Replication of variance swap using vanilla option under black and scholes model with nonzero risk-free rate and nonzero dividend [duplicate]

I didn't find the formula for the following portfolio (variance swap replication) with nonzero risk-free rate and nonzero dividend under black and scholes model : I found formula and proof only with ...
76 views

### Variance Swaps for IR products

Just a question here. I am aware that variance swaps for equity products are quite common in the market. However, will anyone be familiar with variance swaps on swap rates in the market? Are they ...
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1 vote