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. Variance

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

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  3. Volatility Swap

    A forward contract whose underlying is the volatility of a given ...
  4. Swap

    Traditionally, the exchange of one security for another to change ...
  5. Credit Default Swap - CDS

    A particular type of swap designed to transfer the credit exposure ...
  6. Implied Volatility - IV

    The estimated volatility of a security's price.
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