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Variance Swap Replication: Discrete or Continuous?

Author

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  • Fabien Le Floc’h

    (Numerical Analysis, TU Delft, 2628 Delft, The Netherlands
    Financial Engineering, Calypso Technology, 75002 Paris, France)

Abstract

The popular replication formula to price variance swaps assumes continuity of traded option strikes. In practice, however, there is only a discrete set of option strikes traded on the market. We present here different discrete replication strategies and explain why the continuous replication price is more relevant.

Suggested Citation

  • Fabien Le Floc’h, 2018. "Variance Swap Replication: Discrete or Continuous?," JRFM, MDPI, vol. 11(1), pages 1-15, February.
    • Handle: RePEc:gam:jjrfmx:v:11:y:2018:i:1:p:11-:d:131575
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    References listed on IDEAS

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