Variance Swap

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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

INVESTOPEDIA EXPLAINS '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.

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