Variance Swap

Contract trading realized vs. fixed variance

What is Variance Swap?

Variance Swap A derivative contract where one party pays a fixed variance rate and receives the realized variance of an underlying asset over the contract period. Unlike volatility swaps, variance swaps can be replicated using a portfolio of options across all strikes, making them the fundamental building block of volatility trading.

Complete Definition

A derivative contract where one party pays a fixed variance rate and receives the realized variance of an underlying asset over the contract period. Unlike volatility swaps, variance swaps can be replicated using a portfolio of options across all strikes, making them the fundamental building block of volatility trading.