A conditional variance swap (also a corridor variance swap) in which realized volatility accrues when the underlying remains below a specified threshold (upper bound). In this swap, the upper bound of the corridor is a preset number, while the lower bound is undefined (zero is its lowest level). For example, a down-variance swap may be structured in a way that it accrues realized volatility as long as the underlying stock is trading below $50. Once the underlying rises above this price, the swap stops accumulating volatility. If during the swap’s life, the underlying bounces back below the threshold, the swap resumes volatility accumulation.

An investor who believes that the implied volatility skew (volatility skew) will steepen can buy a down-variance swap. If the skew is expected to flatten, the investor can sell a down-variance swap.