Variance swaps and non-constant vega
Variance swaps have gained in popularity due to their ability to provide investors with purevolatility exposure – a fairly stable gamma exposure despite changes in the value of theunderlying. The vega exposure of this product, however, varies linearly with the time tomaturity of the swap. David E Kuenzi identifies a simple strategy for maintaining both stablegamma and stable vega exposures and then disaggregates this strategy into its pure vega andgamma components, thus proposing a new gamma contract
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