Raphael Simonnet: Variance and volatility swaps: Back test of a volatility swap replication strategy

In this paper, we study variance and volatility swaps. These quite recent products give direct exposure to volatility which can be used in the goal of speculation or hedging. By studying variance swap's theory and replication, we show how it is possible to capture the realized volatility on a product using only vanilla options. This theory is then used to implement a volatility swap hedging strategy whose performance is evaluated based on historical data.