DEFINITION of 'Variance Swap'
A type of volatility swap where the payout is linear to variance rather than volatility. Therefore, the payout will rise at a higher rate than volatility
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BREAKING DOWN 'Variance Swap'
Variance is the square of standard deviation. Because of this, a variance swaps' payout will be larger than that of a volatility swap, as these products are based upon variance rather than standard deviation.
RELATED TERMS

Swap
A derivative contract through which two parties exchange financial ... 
Variance
The spread between numbers in a data set, measuring Variance ... 
Volatility Swap
A forward contract whose underlying is the volatility of a given ... 
Volatility
1. A statistical measure of the dispersion of returns for a given ... 
Warrant
A derivative that confers the right, but not the obligation, ... 
Hedge
Making an investment to reduce the risk of adverse price movements ...
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An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... Read Full Answer >> 
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