Volatility swap

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In finance, a volatility swap is a forward contract on the future realised volatility of a given underlying asset. Volatility swaps allow investors to trade the volatility of an asset directly, much as they would trade a price index.

The underlying is usually a foreign exchange (FX) rate (very liquid market) but could be as well a single name equity or index. However, the variance swap is preferred in the equity market due to the fact it can be replicated with a linear combination of options and a dynamic position in futures.

[edit] See also

v • d • e
Volatility
Modelling volatility
Trading volatility

Volatility arbitrage · Straddle · Volatility swap · Variance swap · VIX
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Derivatives market
Derivative (finance)
Options
Swaps
Other derivatives