Variance, swaps and volatility

Mechanics, price and strategies

Course objectives

  • Measure volatility and understand its importance
  • Master the functionning, price and market of variance swaps
  • Know how to use and manage these products in Asset Management

Volatility: user manual

  • Historical and implied volatility
  • Estimation of volatility
  • Skew, smile and implicit volatility
  • An asset class in its own right
  • Application in periods of high / low volatility

Case Study: Understand the VIX, VDAX and VSTOXX volatility indices

Case Study: Identify trading opportunities in the term structure of volatilities

Capture volatility

  • With vanilla option strategies
  • Advantages and limitations of these strategies

Case Study: Building strategies to capture volatility from vanilla options

Variance swaps

  • Market development, motivation and behavior of actors
  • Mechanism of variance swaps
  • How to value a variance swap? What mark to market?
  • Impact of the price convexity
  • Advantages and limitations of these strategies to capture the volatility

Case Study: Analysis of a term sheet for a variance swap

Case Study: Calculation of a variance swap mark to market

Replication and hedging

  • Replicate a variance swap from vanilla calls and puts
  • Calculate the Greeks of variance swaps

Basic and advanced Uses of variance swaps

  • Hedging on the equity market
  • Directional Trading on volatility
  • Arbitrage of the term structure of volatility and volatility of stocks against CDS

Oscar Relier

Oscar Relier

Oscar has worked in corporate finance and trading room for SBC Warburg, UBS and Deutsche Bank. He masters the mechanism, use and pricing of derivatives. Also trained in behavioral techniques, he designs and conducts training on public presentation and on the issues of communication and management.

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