A measure of rate/ price variability associated with the payoff or return of an instrument. This measure is typically based on intraday returns, but lower data frequencies can also be used. Realized variance is realized volatility squared. Per se, realized volatility is the sum of the squared “log returns” of the instrument over a given period (N).

For example, an option on realized variance (or variance option) is a variance derivative in which the payoff is determined based on the annualized realized variance of the return of a certain underlying asset, e.g. stock index, bond, currency exchange rate, etc.