A variance swap is an over-the-counter financial derivative that allows one to speculate on or hedge risks associated with the magnitude of movement, i.e. volatility, of some underlying product, like an exchange rate, interest rate, or stock index.

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

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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Linear means that it rises at an equal rate for each percentage point increase in the underlying index or asset.

A variance swap is a type of volatility swap where the payout is linear to variance rather than volatility.

The payout will rise at a higher rate than volatility.

Because it has larger payouts than other types of derivatives, such as options and futures contracts.