The payoff of a variance swap is quite a different affair depending on who you are in the buying and selling process. Suppose I am a nasty speculator who thinks the spot market for Easter Eggs is going to go crazy and wants to be long realized variance on Easter Eggs. I don't care about Easter Eggs, I don't consume Easter Eggs, I just watch the prices like a hawk and see that things are going crazy.
Lots of people are buying and selling Easter Eggs and no-one, absolutely no-one, can agree a price. Why? The cost of cocoa, the cost of milk, the cost of sugar are all fluctuating wildly according to strange models like e=mc-squared.
Lots of people are buying and selling Easter Eggs and no-one, absolutely no-one, can agree a price. Why? The cost of cocoa, the cost of milk, the cost of sugar are all fluctuating wildly according to strange models like e=mc-squared.
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