Variance Swap Quant Interview Guide
Variance swap quant interview guide covering payoff, realized variance, variance strike, replication intuition, tail risk, and examples.
Candidates discussing volatility products, realized variance, and convexity.
Variance swaps pay realized variance versus a strike
A variance swap transfers exposure to realized variance over a period, usually comparing realized variance to a fixed variance strike.
Variance and volatility are not the same payoff
Variance is squared volatility, so large moves matter disproportionately and tail events can dominate the realized payoff.
Concrete example
A long variance swap benefits when realized variance exceeds the contracted strike, even if the underlying ends near where it started.
Replication is an options intuition
Static replication intuition uses a strip of options across strikes, but real markets have discrete strikes, transaction costs, and tail gaps.
Common mistakes
Candidates often talk about variance swaps like simple volatility bets. Explain convexity, tail exposure, and mark-to-market risk.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.