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Pricing variance swaps with stochastic volatility

Conference Paper


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Abstract


  • Following the pricing approach proposed

    by Zhu & Lian [19], we present an exact solution

    for pricing variance swaps with the realized variance

    in the payo® function being a logarithmic return of

    the underlying asset at some pre-speci¯ed discrete

    sampling points. Our newly-found pricing formula is

    based on the Heston's [8] two-factor stochastic volatil-

    ity model. The discovery of this exact and closed-form

    solution has signi¯cantly improved the computational

    e±ciency involved in computing the value of variance

    swaps with discrete sampling points.

Publication Date


  • 2009

Citation


  • Zhu, S. & Lian, G. (2009). Pricing variance swaps with stochastic volatility. Proceedings of the World Congress on Engineering 2009 Vol II (pp. 1359-1364). United Kingdom:

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1782&context=eispapers

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers/776

Start Page


  • 1359

End Page


  • 1364

Place Of Publication


  • United Kingdom

Abstract


  • Following the pricing approach proposed

    by Zhu & Lian [19], we present an exact solution

    for pricing variance swaps with the realized variance

    in the payo® function being a logarithmic return of

    the underlying asset at some pre-speci¯ed discrete

    sampling points. Our newly-found pricing formula is

    based on the Heston's [8] two-factor stochastic volatil-

    ity model. The discovery of this exact and closed-form

    solution has signi¯cantly improved the computational

    e±ciency involved in computing the value of variance

    swaps with discrete sampling points.

Publication Date


  • 2009

Citation


  • Zhu, S. & Lian, G. (2009). Pricing variance swaps with stochastic volatility. Proceedings of the World Congress on Engineering 2009 Vol II (pp. 1359-1364). United Kingdom:

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1782&context=eispapers

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers/776

Start Page


  • 1359

End Page


  • 1364

Place Of Publication


  • United Kingdom