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A variance swap from trade to mark · Part 2 of 3
You buy a one-year variance swap with a strike of 20 volatility points and a vega notional of $100,000. It pays the variance notional times realised variance minus the strike squared, both in volatility points squared. Rates are zero.
Realised volatility over the year turns out to be 25%. What does the swap pay you?
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