Volatility Trading and Arbitrage Strategies › Key Parameters
Michael BrenndoerferDecember 30, 20251 min read
Quantitative FinanceAll chapters Part 11 of 15Quantitative Trading Strategies
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The key parameters for variance swaps are:
- K_vol: Volatility strike. The reference level of volatility; payoff is zero if realized volatility equals this strike.
- N_vega: Vega notional. The approximate P&L per 1% change in volatility.
- Realized Variance: The sum of squared daily log returns over the life of the contract, annualized.