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Medium · Options & Greeks · Quant Trader interview question · volatility, variance, options, jensen-inequality
A trader is evaluating volatility and variance swaps on the same underlying asset. A variance swap pays $( \sigma_{realized}^2 - K_{var} )$ at maturity, where $\sigma_{realized}^2$ is the realized variance and $K_{var}$ is the variance strike. A volatility swap pays $( \sigma_{realized} - K_{vol} )$ at maturity, where $\sigma_{realized}$ is the realized volatility and $K_{vol}$ is the volatility strike. Given Jensen's inequality, which of the following relationships between the fair st