Variance Leg Terms

Definition

Variance Leg Terms. A return which is driven by a Variance Calculation. Variance of a single price (over time - how is this modeled? Is this the duration of the contract or some defined period or poeriods of time). The variance gets its time basis from the negotiated period in the contract, e.g. Variance over 3 months. Check: Is this always the duration of the contract or can it be for example a set of time scales (say monthly) ove the life of say a 6 month contract, and take an average?? This is logically possible but we don't know if this is what this is. FpML: A type describing return which is driven by a Variance Calculation. More notes 17 Mar Varianc v covariance Variance is a surrogate for option. Talks about random fluctuation in prices If you look at options theory (black scholes) then the price of an option is 1rily dependent in variation in the price. The more variable the more expensive ot maintain a portfolio that is indifferent to the next move in price. So this Variance Swap allows you to extract that option price (i.e. the variance as above) into the variability of the underlying price. So then the asset being traded is in fact the asset that the price references. context: This is all about controlling the price of an asset (from the point of view of the portfolio holder). similarly with the variance on an index you are picking up on the generic market stability. Recall that an index is controlling an underlying portfolio, but with the index you talk directly about the price (in an index swap), this gives you control of a portfolio that is represented by that index. Basket Swap is this - difference is agreed basket (Index, which has a publisher) versus Basket where the "index" (we don't call it that here) is a basket of securities.

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This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.