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Generalized Variance Swap using Generalized Variance Method for Stochastic Volatility Models

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  • Semere Gebresilassie
  • Mulue Gebreslasie
  • Minglian Lin

Abstract

This paper develops a generalized variance framework for pricing multi-asset dispersion swap based on the determinant of the instantaneous covariance matrix of asset log-returns. This determinant-based measure captures the joint dispersion of multivariate asset returns while accounting for their dependence structure. We formulate the proposed framework under the Heston and Barndorff-Nielsen-Shephard (BNS) stochastic volatility models, deriving an analytical pricing expression for the three-asset Heston formulation and a tractable approximation for the corresponding BNS formulation. To assess the empirical performance of the proposed approach, we conduct numerical experiments using nine stocks obtained through the quantmod package, randomly partitioned into three groups of three assets. The models are calibrated and evaluated against empirical generalized realized variance across selected time horizons.

Suggested Citation

  • Semere Gebresilassie & Mulue Gebreslasie & Minglian Lin, 2025. "Generalized Variance Swap using Generalized Variance Method for Stochastic Volatility Models," Papers 2510.20047, arXiv.org, revised Oct 2026.
    • Handle: RePEc:arx:papers:2510.20047
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    References listed on IDEAS

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    1. Subhojit Biswas & Diganta Mukherjee, 2019. "A Proposal for Multi-asset Generalised Variance Swaps," Papers 1908.03899, arXiv.org.
    2. Subhojit Biswas & Diganta Mukherjee, 2019. "A Proposal For Multi-Asset Generalized Variance Swaps," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(04), pages 1-29, December.
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    1. Subhojit Biswas & Diganta Mukherjee & Indranil SenGupta, 2020. "Multi-asset Generalised Variance Swaps in Barndorff-Nielsen and Shephard model," Papers 2011.13474, arXiv.org.

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