--- title: "What is a variance swap | RupeeCase" description: "A variance swap pays the difference between realised variance over its life and a strike fixed at the start." source_url: "https://www.rupeecase.com/learn/questions/what-is-a-variance-swap" --- From February to April 2026, realised volatility ran above India VIX on about two in three sessions India VIX and the Nifty's twenty day realised volatility, in percent a year, from 1 Feb to 30 Apr 2026. Each point is one session. Realised volatility is computed by RupeeCase from the NSE closes. Source: NSE end of day data, computed by RupeeCase. As of 30 Apr 2026. The contract pays a variance notional times the gap between realised variance and the strike variance: payoff = N x (RV^2 - K^2) RV, K in volatility points Realised variance is the sum of squared daily log returns, annualised, so one large move counts far more than several small ones. A long holder gains when the index moved more than the strike implied, and loses when it moved less. The payoff is linear in variance, not in volatility, so a variance swap can be replicated with a strip of out of the money options weighted by one over the strike squared. That result is the basis of the VIX formula. The fair strike is the expected variance under the option prices, which is why the strip matters more than the implied volatility of any single option. The chart shows the kind of stretch in which a long variance holder is paid. From February to April 2026, the realised volatility of the previous twenty sessions ran above India VIX on about two in three sessions. Realised volatility here looks back and a swap's payoff looks forward, so this is one episode in one file. It illustrates the gap and is not a swap's profit and loss, or evidence of a premium. Check the contract terms before using the arithmetic. The strike is quoted in volatility points, but the payoff is on variance, which is the volatility squared. Day count, sampling of closes and the window all change the answer, and the [variance risk premium page](/learn/questions/variance-risk-premium) explains what the average gap means for option sellers. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) What is a variance swap?A variance swap pays the difference between realised variance over its life and a strike fixed at the start, so it is a bet on how much the index moves rather than where it ends. Variance swaps do not trade on Indian exchanges, but India VIX is built from the same strip of options that prices one. LGo deeper ## Where Learn teaches this. [Go deeperMeasuring realised volatility: four estimators9 min, Intermediate](/learn/path-16/module-16-5-realised-volatility-estimators)[Go deeperVolatility: historical against implied7 min, Beginner](/learn/path-16/module-16-1-historical-vs-implied-volatility) SSources ## Go to the source. 2 sources, NSE the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [NSE, India VIX index page and methodology](https://www.nseindia.com/products-services/indices-indiavix-index) NSE 2. Demeterfi, Derman, Kamal and Zou, A Guide to Volatility and Variance Swaps, Journal of Derivatives 6(4) (1999) Paper ?Questions people ask ## Related questions. [QuestionIs option selling paid for taking risk (the variance risk premium)?Advanced](/learn/questions/variance-risk-premium)[QuestionHistorical, implied and realised volatility: what is the difference?Intermediate](/learn/questions/historical-implied-realised-volatility)[QuestionVolatility smile or skew: what is the difference?Intermediate](/learn/questions/volatility-smile-vs-skew)[QuestionWhat is forward volatility and how does it relate to calendar spreads?Advanced](/learn/questions/what-is-forward-volatility)[QuestionWhat is India VIX?Beginner](/learn/questions/what-is-india-vix) [All 130 questions](/learn/questions/) Explore next ## Go deeper on this question. * [QuestionHow do volatility forecasting models like GARCH work?A short answer with a dated chart](/learn/questions/garch-volatility-forecasting) * [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder) * [GlossaryInvesting glossary, 230 termsPlain word definitions, and the app’s own](/learn/glossary) Community ## Join my WhatsApp group. 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