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Discrete variance swap in a rough volatility economy

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  • Yiru Xi
  • Hoi Ying Wong

Abstract

The discrete variance swap is one of the most popular volatility derivatives traded on the over‐the‐counter market. This paper discusses its valuation in a rough volatility economy and the impact of roughness on the term structure of discrete variance swap prices. A semianalytic solution is obtained through stochastic convolution. Our numerical experiments show that the roughness of volatility has a significant impact on the concavity of the variance swap term structure.

Suggested Citation

  • Yiru Xi & Hoi Ying Wong, 2021. "Discrete variance swap in a rough volatility economy," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(10), pages 1640-1654, October.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:10:p:1640-1654
    DOI: 10.1002/fut.22242
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    References listed on IDEAS

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    Cited by:

    1. Liang Wang & Weixuan Xia, 2022. "Power‐type derivatives for rough volatility with jumps," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(7), pages 1369-1406, July.

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