Options on Realized Variance in Log-OU Models
We study the pricing of options on realized variance in a general class of Log-OU (Ornstein--�hlenbeck) stochastic volatility models. The class includes several important models proposed in the literature. Having as common feature the log-normal law of instantaneous variance, the application of standard Fourier--Laplace transform methods is not feasible. We derive extensions of Asian pricing methods, to obtain bounds, in particular, a very tight lower bound for options on realized variance.
Volume (Year): 19 (2012)
Issue (Month): 5 (November)
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