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.

RELATED TERMS
  1. Variance

    The spread between numbers in a data set, measuring Variance ...
  2. Budget Variance

    A periodic measure used by governments, corporations or individuals ...
  3. Portfolio Variance

    The measurement of how the actual returns of a group of securities ...
  4. Unfavorable Variance

    An accounting term that describes instances where actual costs ...
  5. Mean-Variance Analysis

    The process of weighing risk against expected return. Mean variance ...
  6. Sales Price Variance

    The difference between the amount of money a business expects ...
Related Articles
  1. Investing

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  2. Investing

    Calculating Portfolio Variance

    Portfolio variance is a measure of a portfolio’s volatility, and is a function of two variables.
  3. Investing

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  4. Trading

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  5. Managing Wealth

    An In-Depth Look At The Swap Market

    The swap market plays an important role in the global financial marketplace; find out what you need to know about it.
  6. Trading

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  7. Trading

    How Are Interest Rate Swaps Valued?

    When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps.
  8. Trading

    Currency Swap Basics

    Find out what makes currency swaps unique and slightly more complicated than other types of swaps.
  9. Investing

    How To Read Interest Rate Swap Quotes

    Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes
  10. Investing

    What's an Interest Rate Swap?

    An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount.
RELATED FAQS
  1. What is the difference between standard deviation and variance?

    Understand the difference between standard deviation and variance; learn how each is calculated and how these concepts are ... Read Answer >>
  2. Is variance good or bad for stock investors?

    Learn how high variance stocks are good for some investors and how diversified portfolios can reduce variance without compromising ... Read Answer >>
  3. What is the difference between variance and standard deviation?

    Explore the differences between standard deviation and variance. Learn more about how statisticians use these two concepts. Read Answer >>
  4. How much variance should an investor have in an indexed fund?

    Learn more about the significance of variance in index funds, its value as a measure of volatility and other common analytical ... Read Answer >>
  5. What is price variance in cost accounting?

    Understand what price variance is in relation to cost accounting. Learn the most common way price variance arises and how ... Read Answer >>
  6. How is an unfavorable variance discovered?

    Learn how unfavorable variance is discovered through defining budget numbers, such as standard rates for labor and materials, ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center