Volatility and related to it the uncertainty inherent to financial markets has an eminent role. Variance swaps are suitable for the trading of it and have led to profound insights in various markets, especially regarding the variance risk premium. However, research on government bonds is less common and insightful, which is why this study aims to fill the gap and extend the research on this topic. This is achieved by two main aspects: First, a European-wide comparison of the Bond variance risk premium is enabled by analyzing the German, French, and Italian Treasury markets. Secondly, two different approaches of structuring the Bond variance swap are considered. While one of them has its theoretical justification, the other is more suitable for practical applications. The results of this study show that the variance risk premium is to be found in the German as well as the European Treasury markets. By shorting the variance swaps attractive returns are feasible, but this varies greatly according to the considered country or approach of structuring.

Keywords: Varianceswaps; Volatility; Variance Risk Premiums; Government Bonds; modellfree.

DOI:  https://doi.org/10.5282/jums/v6i2pp370-392