Volatility spikes cause losses

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A series of sharp upward spikes in equity price volatility in the past month has forced some hedge funds to unwind variance swap positions after incurring large losses, traders say.

Variance swaps have been popular with hedge funds over the past 12 months, with many taking the view that the relatively benign equity market conditions of the past two years would continue. But inflation worries and anticipated interest rate hikes have created instability in the equity markets, causing volatility