One Thing You Did Not Know About Variance Swaps

Abstract:     
In this paper we elaborate on what is commonly referred to as the Skew Delta of a Variance Swap, i.e. the sensitivity of the fair strike of a variance swap relative to moves in the underlying's spot price. In particular we examine whether or not a pure variance product such as a variance swap should be hedged with an offsetting delta on the spot.

Number of Pages in PDF File: 10

Keywords: Variance Swap, Skew, Delta, Sticky Strike, Restriking, Gamma, Vanna, Volga

JEL Classification: D8, E2, G1, G2, N2

working papers series