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

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