14

Investor C entered into the long position of the following variance swap. If in one year the index realized a volatility of 18%, what would be the profit or loss?

(Hint: Express the profit or loss in terms of vega notional: P&L / Vega Notional)

Variance Swap
Trade Date	May 1, 2020
Maturity Date	May 1, 2021
Underlying	S&P 500 Index
Denominated Currency	USD
Vega Notional	$250,000
Strike Price	22
Cap Level	2.5 x Strike

Review Later

7.27 vegas

(7.27 vegas)

(3.64 vegas)

3.64 vegas