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Volatility Derivatives

Author

Listed:
  • Peter Carr
  • Roger Lee

    () (Bloomberg/NYU, New York, NY 10022
    Department of Mathematics, University of Chicago, Chicago, Illinois 60637)

Abstract

Volatility derivatives are a class of derivative securities where the payoff explicitly depends on some measure of the volatility of an underlying asset. Prominent examples of these derivatives include variance swaps and VIX futures and options. We provide an overview of the current market for these derivatives. We also survey the early literature on the subject. Finally, we provide relatively simple proofs of some fundamental results related to variance swaps and volatility swaps.

Suggested Citation

  • Peter Carr & Roger Lee, 2009. "Volatility Derivatives," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 319-339, November.
  • Handle: RePEc:anr:refeco:v:1:y:2009:p:319-339
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.financial.050808.114304
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    More about this item

    Keywords

    variance swap; volatility swap; realized variance; realized volatility; implied volatility;

    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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