The Delta of a Variance Swap

Sébastien Bossu; Sebastian Gaitan-Escarpeta

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arXiv · 2609.08959

The Delta of a Variance Swap

Sébastien Bossu·Sebastian Gaitan-Escarpeta

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Abstract

We define the variance swap delta as the sensitivity of the price of variance to a change in underlying price. We use Carr-Madan spanning formulas to analyze this sensitivity when the implied volatility smile curve may depend on the underlying price. We show that the variance swap total delta is zero for the class of smile curves that are pure functions of (log) moneyness, which goes against the empirical observation that variance is up when the market is down. We propose a simple modification of the smile to correct this issue.

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Sébastien Bossu, Sebastian Gaitan-Escarpeta. 2026-09-08. The Delta of a Variance Swap. https://arxiv.org/abs/2609.08959

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