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Answer: The payoff in a volatility swap is based on the difference between a fixed (preagreed) volatility and a realized, historical volatility
A **volatility swap** pays based on the difference between a **preagreed volatility strike** and the **realized volatility** over the life of the swap. - **A** is false: VIX is an index, not a volatility swap. - **C** is false: options generally provide broader exposure than a volatility swap. - **D** is false: **variance swaps** are typically easier to value than volatility swaps because variance is additive and easier to replicate.
Author: Manit Arora
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Q-178.7. With respect to a volatility swap, which of the following is TRUE?
A
VIX (CBOE volatility index) is branded but is functionally equivalent to a volatility swap
B
The payoff in a volatility swap is based on the difference between a fixed (preagreed) volatility and a realized, historical volatility
C
A volatility swap provides exposure to more risk factors than an option
D
A volatility swap is easier to value than a variance swap
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