Swap of volatility

A swap of volatility (resp. of variance) is a derivative product whose payoff is $N\; (\backslash \; sigma\_R-K\_\; \{flight\})$ (resp. $N\; (\backslash \; sigma\_R^2-K\_\; \{VAr\})$),

where $\backslash \; sigma\_R^2$ is the variance carried out over the period of the swap.

One can make use of it to speculate in the future level of the volatility of a course or an index, or to cover oneself against unforeseen variations of volatility, if one uses strategies on which the effectiveness is strongly dependant on volatility for example.

See too

• Swap (finance)

External bonds and documents

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