The ups and downs
Sophisticated hedge funds and proprietary trading desks have piled into exotic variance products in the past 18 months. Radi Khasawneh looks at how these products work, and what the recent heightened volatility has meant to this market
Significant unwinding activity has been apparent among sophisticated hedge funds active in exotic varieties of variance swaps in recent weeks.
Conditional variance products, for instance, have proved popular, as they allow hedge funds and prop desks to express a view on the direction of volatility more cheaply than with a standard variance swap.
As with standard variance swaps, conditional variance swaps have a payout equal to the difference between realised variance and a pre-agreed strike level
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