Variance Swap - why Vega/2*k?
Posted: May 9th, 2008, 1:35 pm
Hi there, Does anyone can help with:1 - why we divided the Vega Notional per 2 times the Vol Strike (Vega/2*Vol strike) to calculate the Variance unit? Where the (2*Vol strike) came from?2- The var cap is always 2.5 * vol strike. Is it market convention or is there any math behind it?Many thanks