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Volatility

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Eurex Exchange strengthens offering in volatility derivatives

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Eurex Exchange continues to ensure market support for its recently launched listed variance futures contract, which is based on the EURO STOXX 50, the most prominent equity index in Europe.

DRW Investments, developer of the variance conversion methodology, has started its market making activity. Eurex and DRW collaborated in the launch of the contract in September; Eurex licensed DRW’s patented methodology earlier this year. DRW quotes the contract up to 50,000 notional vega at a spread of 1.5 volatility points.
 
“We are excited to provide liquidity in the new EURO STOXX 50 variance futures. We feel there is market demand and by creating an economically equivalent futures contract, more market participants will have access to an additional volatility product,” says Don Wilson, founder and CEO of DRW.
 
Further, several clearing members have completed their internal setup and are able to offer their clearing services for the new product – among them Societe Generale Newedge UK Limited, Jefferies Bache Limited and Credit Suisse.
 
”We are very pleased by the on-boarding of market makers like DRW and the market readiness of important clearing members. Our listed variance futures product can be very beneficial for the further development of this overall market segment,” says Mehtap Dinc, Eurex executive board member.
 
To facilitate trading of market participants, Eurex also offers the toolkit “Advanced Services” – currently available for Eurex’s VSTOXX derivatives – for its variance futures as of this week. With these tools, market participants can for instance back test trading strategies and efficiently analyse data related to the new contract.
 
Variance futures replicate the pay-off profile of a variance swap using a daily-margined futures contract. Instead of a final settlement payment upon expiry the pay-off profile of a variance swap is calculated as the sum of all variation margin payments through the period the variance futures contract is held.

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