How the RIVET™ Methodology Works

In a RIVET-backed futures contract, the traded volatility strike is converted to a futures price and the notional vega of the trade is converted to variance futures.  During this conversion process, a pricing adjustment is made to correct for the differing economics created by differences in collateral flow and margin payments.  Also, both the traded volatility strike and notional vega are adjusted for the realized variance from the contract’s inception date until the trade day.  Once converted, the result is a standardized, spot starting, variance future that replicates the payoff streams from different OTC swap transactions.


  OTC Variance Swap RIVET™ Backed Future
Price negotiated in
Volatility Volatility
Size negotiated in
Vega Vega
Start convention
Spot Starting Spot Starting
End convention
Option Expiration date Option Expiration date
Price of Instrument
Present Value of Swap  Futures Price* --  Present Value of Swap w/ standard strike

*adjusted for return on variation margin

5-Year Variance Swap (Simulation)