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Volatility Note


An interest rate product which pays a coupon linked to the absolute volatility of an interest rate index over a specific period of time. In volatile markets, the note holder takes advantage of changes in the underlying index, regardless of direction. The coupon of a volatility note is given in the following formula:

Volatility Note

This instrument helps long-term bond investors to establish a natural hedge, i.e., to mitigate the effect of negative volatility on their investments. If rates increase, the value of bonds goes down, whilst the fall of rates would hinder any feasible rolling over of available funds.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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