## 10 VARIANCE PRODUCT ARCHITECTURE

### 10.1 Variance Derivatives Scope

The Equity Derivative Working Group extended FpML to cover:

- Variance Swaps, a type of volatility swap where the payout is linear to variance rather than volatility, therefore the payout will rise at a higher rate than volatility;
- Short Form Variance Options represented also as Transaction Supplements under ISDA Master Confirmation Agreements.

### 10.2 Overall Architecture

Variance Swaps and Options are modelled using the following product element in FpML:

- varianceSwapTransactionSupplement
- varianceOptionTransactionSupplement

Please note that the following documentation describes the full, confirmation-view representation of variance swaps. In Transparency view, some of the fields mentioned below are not available. Please consult the schema reference for more precise documentation.

these components provide support for:

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10.2.1 varianceSwapTransactionSupplement

varianceSwapTransactionSupplement specifies the structure of a variance swap transaction supplement. This modelled using the same variance legs as Variance Swap, but does not allow for long form content such as extraordinary events.

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10.2.2 VarianceLeg

varianceLeg - A type describing return which is driven by a Variance calculation.

| legIdentifier - Version aware identification of this leg. (e.g. Variance Dispersion typically involves many legs, with 1 IVS and 50 EVS legs being typical. Leg Identifier has been introduced as an optional child element to support identification of each of these legs.)

####

10.2.3 varianceOptionTransactionSupplement

varianceOptionTransactionSupplement specifies the structure of a variance option transaction supplement. VarianceOptionTransactionSupplement implements Variance Option Transaction Supplement by providing a short form representation for use in trades governed by a Master Confirmation Agreement.

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