Strategy #0000000041 · Volatility derivatives
Variance swaps
Settle realised variance minus strike variance; do not confuse it with a volatility swap.
A variance swap pays the difference between realised variance and a variance strike. In annualised volatility percentage points, the variance difference is the difference of squared volatilities; variance notional converts variance points to currency. Terms define sampling, annualisation, missing prices, jumps and settlement. It differs from a volatility swap, which pays on volatility differences.
Payoff is linear in variance and convex in volatility; jumps, sampling and multipliers matter.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
How far must realised variance differ from the strike to cover contract costs?
Jack buys a swap with 20% strike volatility and assumes 22% realised volatility. Rose computes 22²−20²=84 volatility-pct², multiplies by variance notional and subtracts cost.
Using 22−20=2 volatility points would describe a volatility swap, not variance swap payoff. Sampling and annualisation change realised variance.
Gaps, price limits, holidays and missing quotes affect observations. The example omits option replication, funding, discounting and counterparty risk.
- Realised volatility assumptionCalculate realised annualised volatility squared minus strike volatility squared, multiply variance notional and subtract costs.
- Variance-strike volatilityNo daily returns, annualisation convention, option chain, discounting or OTC terms; not an executable quote.
- Squared-volatility differenceIllustrative expiry outcome.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
\operatorname{Payoff}=N_{var}(\sigma_{realised}^2-K_{var}),\quad \sigma_{realised}^2=(A/n)\sum_i r_i^2
Nvar is notional per variance point; Kvar is the variance strike; A annualises and ri are contract-defined interval returns. This scenario simplifies using annualised volatility percentages squared.
Greeks: the directional intuition
- 跳躍與取樣
- Measures sensitivity to implied volatility.
- 凸性
- Measures sensitivity to implied volatility.
- OTC 條款
- Measures sensitivity to implied volatility.
\operatorname{Payoff}=N_{var}(\sigma_{realised}^2-K_{var}),\quad \sigma_{realised}^2=(A/n)\sum_i r_i^2
Practical context · published observations
Variance swaps: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
沒有日報酬、年化係數、選擇權鏈、折現或 OTC 條款；不代表可成交報價。 Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Related methods change their signal or exposure.
Each entry states the mechanism and trade-off.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| Variance swap | Variance payoff | Settles annualised realised variance versus strike. | Jump, sampling and replication residuals. |
| Volatility swap | Volatility payoff | Pays realised volatility minus a volatility strike. | Convexity means it differs from a variance swap. |
| Variance futures | Exchange contract | Trades standardised variance exposure. | Liquidity, basis and contract-month risk. |
No daily returns, annualisation convention, option chain, discounting or OTC terms; not an executable quote.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.