A simplified analytical approach for pricing discretely-sampled variance swaps with stochastic volatility
Pricing variance swaps under stochastic volatility with discretely-sampled realized variance has been a hot subject pursued recently; quite a few papers have already been published (Zhu and Lian (2009, 2011, [11,4]); Swishchuk and Li (2011) [5]). In this paper, we present a simplified approach to pr...
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| Published in | Applied mathematics letters Vol. 25; no. 11; pp. 1644 - 1650 |
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| Main Authors | , |
| Format | Journal Article |
| Language | English |
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Elsevier Ltd
01.11.2012
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| Online Access | Get full text |
| ISSN | 0893-9659 1873-5452 |
| DOI | 10.1016/j.aml.2012.01.029 |
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| Abstract | Pricing variance swaps under stochastic volatility with discretely-sampled realized variance has been a hot subject pursued recently; quite a few papers have already been published (Zhu and Lian (2009, 2011, [11,4]); Swishchuk and Li (2011) [5]). In this paper, we present a simplified approach to price discretely-sampled variance swaps. Compared with the approach presented by Zhu and Lian (2011) [4], an important feature of our approach is that there is no need for the introduction of a new state variable and the utilization of the generalized Fourier transform. This has significantly simplified the solution procedure and will thus enable researchers to view this type of problems from a different angle. |
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| AbstractList | Pricing variance swaps under stochastic volatility with discretely-sampled realized variance has been a hot subject pursued recently; quite a few papers have already been published (Zhu and Lian (2009, 2011, [11,4]); Swishchuk and Li (2011) [5]). In this paper, we present a simplified approach to price discretely-sampled variance swaps. Compared with the approach presented by Zhu and Lian (2011) [4], an important feature of our approach is that there is no need for the introduction of a new state variable and the utilization of the generalized Fourier transform. This has significantly simplified the solution procedure and will thus enable researchers to view this type of problems from a different angle. |
| Author | Rujivan, Sanae Zhu, Song-Ping |
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| Cites_doi | 10.1111/j.1540-6261.1997.tb02721.x 10.1111/j.1467-9965.2010.00436.x 10.1093/rfs/9.1.69 10.1142/S0219024908005032 10.2307/1911242 10.2307/3003143 10.1080/14697680500401490 10.1155/2011/435145 10.1093/rfs/6.2.327 10.1111/1467-9965.00039 10.21314/JCF.2001.057 |
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| Keywords | Stochastic volatility Explicit formula Variance swaps Heston model Closed-form exact solution |
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| SubjectTerms | Closed-form exact solution Explicit formula Heston model Stochastic volatility Variance swaps |
| Title | A simplified analytical approach for pricing discretely-sampled variance swaps with stochastic volatility |
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