Prices and Asymptotics for Discrete Variance Swaps

Carole Bernard, Zhenyu Cui Coders: Carole Bernard, Zhenyu Cui

Code and Data Abstract

The program implements formulas for each proposition of the paper. In particular it computes the fair strike of the discrete variance swap and the continuous variance swap in the Heston and Hull-White model. It also gives asymptotics.

Paper Abstract

We derive closed-form expressions for the fair strike of a discrete variance swap for a general time-homogeneous stochastic volatility model. In the special cases of Heston and Hull-White stochastic volatility models we give simple explicit expressions (improving Broadie and Jain (2008a) for the Heston case). We give conditions on parameters under which the fair strike of a discrete variance swap is higher or lower than the continuous variance swap. Interest rates and correlation between underlying price and its volatility are key elements in this analysis. We derive asymptotics for the discrete variance swaps and compare our results with those of Broadie and Jain (2008a), Jarrow et al. (2012) and Keller-Ressel (2011).

Carole Bernard, Zhenyu Cui Coders: Carole Bernard, Zhenyu Cui, et al. "Prices and Asymptotics for Discrete Variance Swaps." SSRN (2012).     Retrieved 06/24/2019 from researchcompendia.org/compendia/2013.135/

Page Owner

sheila@codersquid.com

created 11/12/2013

modified 01/16/2014

blog comments powered by Disqus

rmc id