FVA has nothing to do with Volswaps. It stands for Forward Volatility Agreement and you enter into a contract to buy/sell a Forward Starting Vanilla option with black Scholes parameters (except for the spot price) set today. As I understand it, an FVA is a swap on the future implied volatility of the currency hedged by an advanced-start ATM option/overlap. A forward start volatility swap is actually a swap on realized future volatility. In another thread, I wrote that Rolloos & Arslan wrote an interesting article about price approximation without a Model of Spot Starting Volswap. This is used to gain exposure to implied forward volatility and is usually similar to trading a longer-term option and reducing your gamma exposure with another option whose expiration date is equal to the term start date, constantly rebalancing you so that you are gamma flat. Looking specifically at FX, but I think it`s a general question. any good reference would be appreciated. VAFs are not mentioned in Derman`s article (“More than you ever wanted to Know about volatility swaps”) The (annual) volatility of a particular asset price or interest rate on a term that starts at t 0 = 0 {displaystyle t_{0}=0} is the spot volatility of that underlying asset for the specific term. A set of these volatilities forms a conceptual structure of volatility, similar to the yield curve. Just as forward interest rates can be derived from a yield curve, forward volatility can be derived from a given maturity volatility structure. I believe the idea behind this is that the future ATM IV is an indicator of expected future volatility. However, THE ATM IV, spot or term, is not a good indicator of the expected volatility achieved if there is a significant correlation between the underlying asset and volatility.

Trading volatility gives investors the opportunity to hedge the volatility risk associated with a derivative position against adverse market movements of the underlying asset(s). It also allows investors to speculate or express their views on the level of volatility in the future. In fact, trade volatility is higher than delta hedging, which uses options to get views on the future direction of volatility. Following the same reasoning, in the general case with t 0 < t, we obtain < T {displaystyle t_{0}<t<T} for the forward volatility observed at time t 0 {displaystyle t_{0}}: the variance is the square of the differences of the measures with respect to the mean divided by the number of samples. The standard deviation is the square root of the variance. The standard deviation of the continuously compounded returns of a financial instrument is called volatility. Agreement that a seller and a buyer enter into to exchange an overlapping option on a specific expiration date. On the day of the exchange, counterparties determine both the expiration date and volatility. On the expiry date, the exercise price on the Straddle`s will be set at the future monetary value on that date. In other words, the forward volatility agreement is a futures contract on the realized volatility (implied volatility) of a particular underlying asset, whether it is a stock, stock market index, currency, interest rate or commodity index. etc. In terms of sensitivity, this is similar to the front boot flight/var exchanges, as you do not currently have gamma and are exposed to the transfer disk.

However, it differs in that you are exposed to standard Vega deformations of vanilla options as well as MTM due to distortion as the spot is far from the original trading date. To facilitate the calculation and obtain a non-recursive representation, we can also express term volatility directly as spot volatility:[1] Futures volatility is a measure of the implied volatility of a financial instrument over a period of time in the future, extracted from the conceptual structure of volatility (which refers to how implied volatility differs for related financial instruments). with different deadlines). . . . .