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Quantitative Finance · Glossary

What is Dispersion trade?

Definition 17.8 Derivatives and Volatility · Chapter 17 — Multi-Asset Options

A dispersion trade sells index volatility and buys the members’ volatility, in variance swaps or straddles, in amounts that cancel the exposure to each member’s volatility. What remains is a short position in the index’s implied correlation: it gains when realised correlation comes in below implied.

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