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Just to be clear, in the context of these contracts, realized vol (just like vega) has a very specific definition, based on end of day settlements. We can talk about realized vola estimators all day long, but for this contract, there's no estimation involved at all.

I'm going to re-work this example, but from the day 1 example so I understand it. Let's say we bought the Jan 13 contract on the first day it listed, right at the 19.9 variance strike. N = 106, n = 0 (no days have elapsed). realized portion = 0, of course. implied portion = 19.9^2 *...

I'm not talking vega in the generic, theoretical sense. I'm talking about the specifics of how this contract trades, like if I or you wanted to go out and place an order for this thing. You can't submit a buy order for "one contract" at 19.50, the way you might do the VIX (or any other...

Yea, the intuition made sense. :) I just wanted to know how the actual mechanics, in terms of how the FCM clears / reports the trade, how the exchange settles the contract, would function to back up that intuition. I mean, I need to figure out how I would allocate these trades to my managed...

Continuing with this thought experiment (which I'll probably test out with some orders tomorrow): - I fill an order to "buy 25000 VAF3 @ 19.5", which gives me long 3543 futures at 782.54 each. - Same day, implied goes up enough that I fill an order to "sell 25000 VAF3 @ 20.5". According...

This makes sense to me. I just did this little thought experiment using the calculator... - say I placed the order above, buying 25000 vega notional. - and immediately afterwards (no change in date), let's say implied goes up 1 full point to 20.50. - CBOE calculator tells me futures price...

That explanation doesn't make sense to me... I'm probably missing something obvious here. But if we assume that CFE table is correct, it's saying: - as of Dec 20th, Jun 13 = 821.11, Sep 13= 807.95 - as of Dec 21st, Jun 13 = 827.44, Sep 13 = 828.94 The other factors you refer to....in...

The implied variance for both Jun 13/Sep 13 moved up a similar amount, and I'm sure realized is the same across both... ... so why is it that CFE table shows Jun-13 futures changing +6.33 (settling at 827.44), while Sep-13 changed +20.99 (settling at 828.99) yesterday? It's probably not...

My understanding is that they are not related to each other in that way. Remember these are futures prices, and not the implied volatility number. Thus, 1000 in Jun 13 has nothing to do with 1000 in Sept 13. The June 13 1000 was determined by whatever implied was in June 2012 when it was...

Not sure what you mean by "jumps". If you are referring to whether prices are assumed to be continuous.. It's priced off of daily settlement numbers, so underlying prices are always jumping, looks like a step function.

You are to me, yes. I've also been thinking about it this way. If I purchase a var swap today with implied at 16%... and you purchase a var swap tomorrow with implied now at 20%, then clearly the price we paid should be different: you should have paid much higher than me. Indeed, I should...

I'm not really sure where you went wrong, so I can't give you specific advice... but no, the final conclusion is definitely not correct. Being long a variance swap means you're both long realized *and* implied vola. Beyond the common sense answer of what a var swap is, you can also look at...

What's the significance of the "variance strike"? My best guess is.. it's just there as kind of a benchmark? So that as long as implied is at exactly what the variance strike was, and realized also happens to be variance strike, then the value of the futures contract = 1000? But other...

I would be interested in a reference / paper explaining the vulnerability of different strategies to curve-fitting...if you have a link to share!

A couple more questions / topics that came to mind mid-sleep, and I wanted to put down before I forget: - what would be one-day change in VA futures value (assuming same implied vola) if realized came in at 0.5x or 2x one-day sigma? 3x sigma? 4x? Does anyone have a curve showing what this...

I mean, I guess I'd just like to know what this thing would look like on my equity run. If I wanted to sell 25k vega notional with volatility price at 16.5, the CBOE calculator tells me that's = 4187 variance units. So, I would go on my trading front end.. and hit an order to sell quantity =...

Apologies while I ask dumb questions while I muddle through this... Could we work on some numbers... where let's say today's move happened to follow your example from 12-18 (skipping the 3 days in between). The volatility for today is roughly 1%. So, realized portion is now 29.575 + 1 =...

sle, Thanks first of all for putting this thread together. I'm hugely interested, and look forward to catching up to the terminology / parameters. Question about the above... 0.25 vol spread? I have the Jan futures quoted as 18.50/20.20, for example. I don't know my odds of getting hit...

Fwiw I asked my executing broker to get me a market on these, and he reached out to the guys making markets on VIX at larger shops (Wolverine / Citadel etc).... And no one is looking / thinking about this at the moment. It'd be nice if we could build critical mass.

That's exactly what I mean. A significant DD, and you might as well hang up your gloves. You will forever be explaining your DD and how/why your risk management changed. Every investor will be wondering what precludes you from having the same loss (or even doubling it) the first month they...