Variance Swap


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.

Variance Swap

What is ‘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

Explaining ‘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.

Further Reading