Valuation of volatility derivatives as an inverse problem
AbstractGround-breaking recent work by Carr and Lee extends well-known results for variance swaps to arbitrary functions of realized variance, provided a zero-correlation assumption is made. We give a detailed mathematical analysis of some of their computations and work out the cases of volatility swaps and calls on variance. The latter leads to an ill-posed problem that we solve using regularization techniques. The sum is divergent, that means we can do something Heaviside†
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Quantitative Finance.
Volume (Year): 5 (2005)
Issue (Month): 6 ()
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Web page: http://taylorandfrancis.metapress.com/link.asp?target=journal&id=111405
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- Albanese, Claudio & Mijatovic, Aleksandar, 2006.
"Spectral Methods For Volatility Derivatives,"
5244, University Library of Munich, Germany.
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