Créer un site internet

The contract

The strike of a variance swap represents the level of volatility bought/sold and is set at trade inception.

The strike is set according to prevailing market levels so that the swap initially has zero value.

 

If subsequent realised volatility > strike --> buyer of variance swap will be in profit. 

If subsequent realised volatility < strike --> buyer of variance swap will be in loss. 

 

A buyer of a variance swap is therefore long volatility. 

 

Capture d ecran 2016 11 22 a 11 22 15

 

Convention: variance swap strikes are quoted in terms of volatility, not variance. 

 

The P&L of a variance swap is non-linear (convex) with volatility, although of course it is linear in terms of variance. 

 

Capture d ecran 2016 11 22 a 11 25 42

 

Add a comment

 

The NEW website is OUT! 

Go have a look at https://www.derivativesacademy.com.

You will find the content in the 'Derivatives Academy' section in a book format. 
The full content is not yet available as I am rewriting it and improving it.

You can try the Exotic Derivatives pricer under the 'Derivatives Pricer' section (
https://www.derivativesacademy.com/derivatives-pricer/). I will speed up the page soon as I forgot to compress some images.
Each application allows you to price differents products and contains links towards the correct section of the book. 
You will then be able to get practical and theoretical knowledge quite easily.

I teach quite often using the pricer. You can get so much information and answers to your questions thanks to it.

Take advantage of it as much as you can to hone your knowledge!

If you are looking for junior opportunities in the field of market finance. Register yourself on the website. It's free!

If you have any questions, do not hesitate to contact me on info@derivativesacademy.com.