Exotic FX derivative option types not yet examined include “volatility” products like volatility swaps, variance swaps, and forward volatility agreements, plus forward start options, and compound options.
In FX derivatives:
Most commonly, daily spot fixings are used to determine realized volatility and variance. Mathematically, for daily spot fixings, realized variance is calculated using this formula:
where are spot log returns, that is, , is spot fixing number , and in total there are N log returns.
The mean return is usually not included in the realized variance formula and usually this will not significantly impact ...