A conditional variance swap is a type of variance swap or swap derivative product that allows investors to take exposure to volatility in the price of an underlying security but only while the underlying security is within a pre-specified price range. This instrument can be useful for hedging complex volatility exposures, making a bet on the volatility levels contained in the skew of the underlying security's price, or buying/selling variance at more attractive levels given a view on the underlying security.[1]
- ^ Allen, Peter; Einchcomb, Stephen, and Granger, Nicolas. Conditional Variance Swaps: Product Note. JPMorgan, 3 April 2006.