- Volatility swap
In

finance , a**volatility swap**is aforward 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.**ee also***

Variance swap

*Volatility (finance)

* [*http://www.derivativesstrategy.com/magazine/archive/1998/0498shrt.asp Prepackaged Volatility Plays*]

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