Vega Notional / Variance Notional

The notional for a variance swap can be expressed either as a variance notional or a vega notional.

The variance notional represents the P&L per point difference between the strike squared (implied variance) and the subsequent realised variance.


Since most market participants are used to thinking in terms of volatility, trade size is typically expressed in vega notional. 

The vega notional represents the average P&L for a 1% change in volatility. 

The vega notional = variance notional * 2K 


The P&L of a long variance swap can be calculated as:  Vs formula

When RV is close to the strike, the P&L is close to the difference between IV and RV multiplied by the vega notional. 

The variance swap payout, expressed in vega notional, is locally linear around the strike. 


Vega and variance notionals


The P&L of a variance swap is often expressed in terms of vega notional.

For a vega notional of €100k, a gain of €500k is expressed as a profit of 5 vegas (i.e. 5 times the vega notional).  

Add a comment


The NEW website is OUT! 

Go have a look at

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 ( 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