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A variance swap from trade to mark · Part 3 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.
Go back to the middle of the year. Realised volatility so far has been 30%, and the market strike for a new six-month variance swap is 22. What is your swap worth?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
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