Hedge funds increase appetite for conditional variance swaps

By Daniel O'Leary
18 Jun 2014

Hedge funds are increasingly entering one-year conditional variance swaps on the S&P 500 that typically use knock-in features, or other conditional characteristics, to cheapen the swap in a bid to benefit from the low volatility in US equities.

A senior equity derivatives official in New York said the investors are also looking at forward start dates, or up-and-out features. The conditional layer will typically involve an Asian index, such as the HSI. “For example I go long the [S&P 500] var swap September-to-December, but only if ...

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