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Valuations of Variance and Volatility Swaps Under Double Heston Jump-Diffusion Model With Approximative Fractional Stochastic Volatility

Author

Listed:
  • Ke Wang

    (Southwestern University of Finance and Economics)

  • Xunxiang Guo

    (Southwestern University of Finance and Economics)

Abstract

In this paper, we study the variance and volatility swaps pricing problem under the framework of double Heston jump diffusion model with approximative fractional stochastic volatility. The pricing formulas of discretely-sampled variance and volatility swaps are obtained by deriving the characteristic function and solving the governing partial integro-differential equations(PIDEs). We also obtain the limits of discretely-sampled variance and volatility swaps pricing formulas, which are the pricing formulas of continuously-sampled variance and volatility swaps. Finally, the effectiveness of the pricing formula is illustrated by comparing with some existing works, and the influence of approximation factor and Hurst parameter variation on the prices of swaps are studied.

Suggested Citation

  • Ke Wang & Xunxiang Guo, 2024. "Valuations of Variance and Volatility Swaps Under Double Heston Jump-Diffusion Model With Approximative Fractional Stochastic Volatility," Computational Economics, Springer;Society for Computational Economics, vol. 63(4), pages 1543-1573, April.
    • Handle: RePEc:kap:compec:v:63:y:2024:i:4:d:10.1007_s10614-023-10374-7
    DOI: 10.1007/s10614-023-10374-7
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