Pricing options on realized variance
AbstractModels which hypothesize that returns are pure jump processes with independent increments have been shown to be capable of capturing the observed variation of market prices of vanilla stock options across strike and maturity. In this paper, these models are employed to derive in closed form the prices of derivatives written on future realized quadratic variation. Alternative work on pricing derivatives on quadratic variation has alternatively assumed that the underlying returns process is continuous over time. We compare the model values of derivatives on quadratic variation for the two types of models and find substantial differences. Copyright Springer-Verlag Berlin/Heidelberg 2005
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 9 (2005)
Issue (Month): 4 (October)
Contact details of provider:
Web page: http://www.springerlink.com/content/101164/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Pospisil, Libor & Vecer, Jan & Xu, Mingxin, 2007. "Tradable measure of risk," MPRA Paper 5059, University Library of Munich, Germany.
- Andrey Itkin & Peter Carr, 2010. "Pricing swaps and options on quadratic variation under stochastic time change models—discrete observations case," Review of Derivatives Research, Springer, vol. 13(2), pages 141-176, July.
- Chourdakis, Kyriakos & Dotsis, George, 2011. "Maximum likelihood estimation of non-affine volatility processes," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 533-545, June.
- Peter Carr & Roger Lee & Liuren Wu, 2012. "Variance swaps on time-changed Lévy processes," Finance and Stochastics, Springer, vol. 16(2), pages 335-355, April.
- Andrey Itkin & Peter Carr, 2010. "Using pseudo-parabolic and fractional equations for option pricing in jump diffusion models," Papers 1002.1995, arXiv.org.
- Giovanni Salvi & Anatoliy V. Swishchuk, 2012. "Modeling and Pricing of Covariance and Correlation Swaps for Financial Markets with Semi-Markov Volatilities," Papers 1205.5565, arXiv.org.
- Nicolas Merener, 2009. "Swap Rate Variance Swaps," Business School Working Papers 2009-02, Universidad Torcuato Di Tella.
- Akihiko Takahashi & Yukihiro Tsuzuki & Akira Yamazaki, 2009. "Hedging European Derivatives with the Polynomial Variance Swap under Uncertain Volatility Environments," CARF F-Series CARF-F-161, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Martin Keller-Ressel & Johannes Muhle-Karbe, 2013. "Asymptotic and exact pricing of options on variance," Finance and Stochastics, Springer, vol. 17(1), pages 107-133, January.
- Jesús P. Colino, 2008. "New stochastic processes to model interest rates : LIBOR additive processes," Statistics and Econometrics Working Papers ws085316, Universidad Carlos III, Departamento de Estadística y Econometría.
- Jesús P. Colino & Francisco J. Nogales & Winfried Stute, 2008. "LIBOR additive model calibration to swaptions markets," Statistics and Econometrics Working Papers ws085619, Universidad Carlos III, Departamento de Estadística y Econometría.
- Ole E. Barndorff-Nielsen & Neil Shephard, 2005.
"Variation, jumps, market frictions and high frequency data in financial econometrics,"
OFRC Working Papers Series
2005fe08, Oxford Financial Research Centre.
- Ole E. Barndorff-Nielsen & Neil Shephard, 2005. "Variation, jumps, market frictions and high frequency data in financial econometrics," Economics Papers 2005-W16, Economics Group, Nuffield College, University of Oxford.
- Neil Shephard & Ole E. Barndorff-Nielsen, 2005. "Variation, jumps, market frictions and high frequency data in financial econometrics," Economics Series Working Papers 240, University of Oxford, Department of Economics.
- Andrey Itkin & Peter Carr, 2012. "Using Pseudo-Parabolic and Fractional Equations for Option Pricing in Jump Diffusion Models," Computational Economics, Society for Computational Economics, vol. 40(1), pages 63-104, June.
- Dotsis, George & Psychoyios, Dimitris & Skiadopoulos, George, 2007. "An empirical comparison of continuous-time models of implied volatility indices," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3584-3603, December.
- Peter Carr & Roger Lee, 2013. "Variation and share-weighted variation swaps on time-changed Lévy processes," Finance and Stochastics, Springer, vol. 17(4), pages 685-716, October.
- Jan Baldeaux & Alexander Badran, 2012.
"Consistent Modeling of VIX and Equity Derivatives Using a 3/2 plus Jumps Model,"
Research Paper Series
306, Quantitative Finance Research Centre, University of Technology, Sydney.
- Jan Baldeaux & Alexander Badran, 2012. "Consistent Modeling of VIX and Equity Derivatives Using a 3/2 plus Jumps Model," Papers 1203.5903, arXiv.org, revised Aug 2012.
- Peter Carr & Roger Lee, 2010. "Hedging variance options on continuous semimartingales," Finance and Stochastics, Springer, vol. 14(2), pages 179-207, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.