A forward contract that pays the difference between a forward price and some measure of the realized stock variance is called a Variance:
A) Skew
B) Smile
C) Surface
D) Swap

Question

Quizplus · Accepted Answer

A forward contract that pays the difference between a forward price and some measure of the realized stock variance is called a Variance Swap. It is a type of swap where two parties agree to exchange the difference between the realized variance of an underlying asset and a pre-agreed variance strike price. The payoff of a variance swap depends on the difference between the actual or realized variance of the underlying asset and the variance strike price, and not on the actual price of the asset. Therefore, it is a useful tool for traders and investors who want to hedge against volatility or speculate on future volatility levels.

A Forward Contract That Pays the Difference Between a Forward