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Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process

Author

Listed:
  • Wenli Zhu

    (Southwestern University of Finance and Economics)

  • Xinfeng Ruan

    (Southwestern University of Finance and Economics
    University of Otago)

Abstract

This paper designs and prices the swaps on discrete realized higher moments under the Lévy process in order to hedge the higher-moment risks, e.g., skewness and kurtosis risks. A comparison with Monte-Carlo simulations provides a verification of the correctness of our pricing formula. This paper is a further extension of Zhu and Lian’s (Math Finance 21:233–256, 2011; Appl Math Comput 219:1654–1669, 2012), which are under the Heston model and only price the variance swaps.

Suggested Citation

  • Wenli Zhu & Xinfeng Ruan, 2019. "Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process," Computational Economics, Springer;Society for Computational Economics, vol. 53(2), pages 507-532, February.
    • Handle: RePEc:kap:compec:v:53:y:2019:i:2:d:10.1007_s10614-017-9753-x
    DOI: 10.1007/s10614-017-9753-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Lévy process; Stochastic volatility; Skewness swaps; Kurtosis swaps;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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