Skip to content
All library documents

Reported Lack of Liquidity in Interest-Rate Variance Swaps

Article Quant Q&A · Author: Benedict
Read the original

Summary

The document asks whether variance swaps on interest-rate swap rates are actively traded and liquid, comparing them with the more familiar equity variance swap market. The response offers a brief market-liquidity observation rather than a pricing method or trading strategy: it points to a research paper mentioned in a Risk magazine issue and reports that the paper described interest-rate variance swaps as lacking liquidity.

This is a narrow and time-sensitive claim, not a detailed survey of trading venues, counterparties, maturities, or market conditions. The cited material is not summarized beyond that conclusion, so the document gives no quantitative evidence or explanation of how liquidity was assessed. Readers should treat it as a reported observation from a particular source and period, not as proof that such contracts are never traded or that conditions remain unchanged.

Key ideas

  • The question concerns liquidity in variance swaps on interest-rate swap rates.
  • The response reports a research paper’s conclusion that this market lacked liquidity.
  • The document provides no quantitative liquidity measures or detailed market survey.
  • The reported observation may depend on the source and period in which it was made.

Tags

Fixed incomeVolatilityDerivatives pricing
Full text
# Variance Swaps for IR products


# Variance Swaps for IR products












Just a question here. I am aware that variance swaps for equity products are quite common in the market. However, will anyone be familiar with variance swaps on swap rates in the market? Are they traded much and is it liquid?

Thank you!

## Answer by siou0107 (score 4)

https://quant.stackexchange.com/a/50346

In this month's Risk magazine, there was a research paper stating precisely

> There is no liquidity in the variance swaps of interest rates.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.