Article by: Matt Cameron
Published by: Risk magazine
Date: 28 Jul 2009
“Dynamic replication of the payoff of volatility swaps on single stocks in illiquid markets is cheaper and easier than replicating variance swaps payoffs, dealers say.
“Activity in variance swaps has died down after volatility spiked in late 2008, causing many dealers to experience hefty losses, particularly in single stocks. The resulting pull-back has spurred dealers to search for other ways to offer volatility trades where clients are not required to delta-hedge options. Dealers such as BNP Paribas are actively pushing volatility swaps as a viable alternative.”
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