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Derivatives

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  • March 12, 2021
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Entropy Swap

An enhanced alternative to a variance swap. In view of the insensitivity of variance swap to the level of the underlying price- as it only embarks on the realized volatility of returns, entropy swaps offer an offsetting mechanism in case the underlying price and short variance are inversely correlated, whereby the rises in the underlying price are offset by the falls of short variance.


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