Optimal Variance Swaps Investments

In this paper, we focus on constructing optimal portfolios of variance swaps based on a variance Gamma correlated (VGC) model. Each variance swap has two legs: a fixed leg (also called the variance strike) and a floating leg (also called the realized variance). The value of a variance swap is the di...

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Bibliographic Details
Published inIAENG International Journal of Applied Mathematics Vol. 41; no. 4; pp. 334 - 338
Main Authors Cao, Lingyan, Guo, Zheng-Feng
Format Journal Article
LanguageEnglish
Published 01.12.2011
Subjects
Acceptability
Distortion
Floating structures
Legs
Mathematical models
Optimization
Strikes
Variance
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Summary:In this paper, we focus on constructing optimal portfolios of variance swaps based on a variance Gamma correlated (VGC) model. Each variance swap has two legs: a fixed leg (also called the variance strike) and a floating leg (also called the realized variance). The value of a variance swap is the discounted difference between the realized variance and the variance strike. The portfolios of the variance swaps are optimized based on maximizing the distorted expectation given the index of acceptability.
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ISSN:1992-9978