RT Report T1 Why do variance swaps exist? A1 Nieto, Belén A1 Novales Cinca, Alfonso Santiago A1 Rubio, Gonzalo AB This paper studies the determinants of the variance risk premium and concludes on the hedging possibilities offered by variance swaps. We start by showing that the variancerisk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that determines the variance risk premium –the fear by investors to deviations from Normality in returns- is also strongly related to a variety of risks: risk of default, employment growth risk, consumption growth risk, stock market risk and market illiquidity risk. Therefore, the variance risk premium could be interpreted as reflecting the market willingness to pay for hedging against financial andmacroeconomic sources of risk. We provide additional evidence in support of that view. PB Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis Económico YR 2011 FD 2011 LK https://hdl.handle.net/20.500.14352/48981 UL https://hdl.handle.net/20.500.14352/48981 LA eng NO JEL classification: C13, C14, G10, G12 NO Ministerio de Ciencia e Innovación NO Generalitat Valenciana DS Docta Complutense RD 10 may 2025