Model independent hedging strategies for variance swaps

Economy – Quantitative Finance – Pricing of Securities

Scientific paper

Rate now

  [ 0.00 ] – not rated yet Voters 0   Comments 0

Details

Scientific paper

A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with continuous paths it is well known that the variance swap payoff can be replicated exactly using a portfolio of puts and calls and a dynamic position in the asset. This fact forms the basis of the VIX contract. But what if we are in the more realistic setting where the contract is based on discrete monitoring, and the underlying asset may have jumps? We show that it is possible to derive model-independent, no-arbitrage bounds on the price of the variance swap, and corresponding sub- and super-replicating strategies. Further, we characterise the optimal bounds. The form of the hedges depends crucially on the kernel used to define the variance swap.

No associations

LandOfFree

Say what you really think

Search LandOfFree.com for scientists and scientific papers. Rate them and share your experience with other people.

Rating

Model independent hedging strategies for variance swaps does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Model independent hedging strategies for variance swaps, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Model independent hedging strategies for variance swaps will most certainly appreciate the feedback.

Rate now

     

Profile ID: LFWR-SCP-O-432761

All data on this website is collected from public sources. Our data reflects the most accurate information available at the time of publication.