Variance Swap


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

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.

  1. Swap

    A derivative contract through which two parties exchange financial ...
  2. Variance

    The spread between numbers in a data set, measuring Variance ...
  3. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  4. Volatility Swap

    A forward contract whose underlying is the volatility of a given ...
  5. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  6. Convergence

    The movement of the price of a futures contract towards the spot ...
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