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2021
A variance swap is an instrument which allows investors to trade future realized (historical) volatility against current implied volatility. The Variance Swap pays the difference between observed variance and a strike variance, possibly subject to a cap and a floor.
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A variance swap is an instrument which allows investors to trade future realized (historical) volatility against current implied volatility. The Variance Swap pays the difference between observed variance and a strike variance, possibly subject to a cap and a floor.
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An Analytic Formula for the Delta of Variance Swap [PDF]
SSRN Electronic Journal, 2008 AbstractThe purpose of this short article is to derive an analytic formula for a variance swap delta. It shows that the delta is determined by the volatility skew and the vega of vanilla options only.
Ararat Yesayan +2 more
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On the valuation of variance swaps with stochastic volatility
Applied Mathematics and Computation, 2008Abstract This paper is an extension to a recent paper by Zhu and Lian (2011) [1] , in which a closed-form exact solution was presented for the price of variance swaps with a particular definition of the realized variance. Here, we further demonstrate that our approach is quite versatile and can be used for other definitions of the realized variance ...
Zhu, Song-Ping, Lian, Guang-Hua
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Model Risk in Variance Swap Rates [PDF]
SSRN Electronic Journal, 2011 Different theoretical and numerical methods for calculating the fair-value of a variance swap give rise to systematic biases that are most pronounced during volatile periods. For instance, differences of 10-20 percentage points would have been observed on fair-value index variance swap rates during the banking crisis in 2008, depending on the formula ...
Carol Alexander +2 more
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A Guide to Volatility and Variance Swaps
The Journal of Derivatives, 1999Trading in derivatives has caused investors, and especially market makers, to be concerned with the volatility of asset returns along with their direction. Uncertain and time-varying volatility imparts risk to an otherwise hedged position, and volatility risk is not easy to manage with ordinary instruments.
Emanuel Derman +3 more
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SSRN Electronic Journal, 2012
Regardless its legacy name as a volatility index, VIX is calculated as a variance swap. Unlike an actual swap, variance swap is a forward contract on realized variance. The note provides a link between theoretical pricing of a variance swap and VIX calculation formula.
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Regardless its legacy name as a volatility index, VIX is calculated as a variance swap. Unlike an actual swap, variance swap is a forward contract on realized variance. The note provides a link between theoretical pricing of a variance swap and VIX calculation formula.
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Variance and Volatility Swap Model
2023A variance/volatility swap is an instrument that allows explicit exposure to the realized variance/volatility of an index, stock, etc., without exposure to other risks commonly encountered with derivatives: delta, gamma, etc.
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, 2016
We propose a particle-based Bayesian method based on a quasi-Monte-Carlo particle filter and a two-stage sequential Monte Carlo sampler with common random numbers to estimate a class of volatility models that take into account co-jumps of underlying ...
Andras Fulop, Junye Li
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We propose a particle-based Bayesian method based on a quasi-Monte-Carlo particle filter and a two-stage sequential Monte Carlo sampler with common random numbers to estimate a class of volatility models that take into account co-jumps of underlying ...
Andras Fulop, Junye Li
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Variance Swap Portfolio Theory
SSRN Electronic Journal, 2009Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance swaps. The optimal design maximizes the index of acceptability
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Pricing Variance Swaps with Cash Dividends [PDF]
SSRN Electronic Journal, 2008 AbstractWe derive a simple formula for the price of a variance swap when the underlying has cash dividends. The formula allows arbitrary rates, yieldâlike dividends (discrete or continuous), and volatility skews, and is exact to first order in the effective cash dividend yield.
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