Please use this identifier to cite or link to this item:
https://hdl.handle.net/2440/79108
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Type: | Journal article |
Title: | Pricing variance and volatility swaps in a stochastic volatility model with regime switching: discrete observations case |
Author: | Elliott, R. Lian, G. |
Citation: | Quantitative Finance, 2013; 13(5):687-698 |
Publisher: | IOP Publishing Ltd. |
Issue Date: | 2013 |
ISSN: | 1469-7688 1469-7696 |
Statement of Responsibility: | Robert J. Elliott and Guang-Hua Lian |
Abstract: | This study presents a set of closed-form exact solutions for pricing discretely sampled variance swaps and volatility swaps, based on the Heston stochastic volatility model with regime switching. In comparison with all the previous studies in the literature, this research, which obtains closed-form exact solutions for variance and volatility swaps with discrete sampling times, serves several purposes. (1) It verifies the degree of validity of Elliott et al.'s [Appl. Math. Finance, 2007, 14(1), 41–62] continuous-sampling-time approximation for variance and volatility swaps of relatively short sampling periods. (2) It examines the effect of ignoring regime switching on pricing variance and volatility swaps. (3) It contributes to bridging the gap between Zhu and Lian's [Math. Finance, 2011, 21(2), 233–256] approach and Elliott et al.'s framework. (4) Finally, it presents a semi-Monte-Carlo simulation for the pricing of other important realized variance based derivatives. |
Keywords: | Variance swaps Regime switching Stochastic volatility Characteristic function |
Rights: | © 2013 Taylor & Francis |
DOI: | 10.1080/14697688.2012.676208 |
Published version: | http://dx.doi.org/10.1080/14697688.2012.676208 |
Appears in Collections: | Aurora harvest 4 Mathematical Sciences publications |
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RA_hdl_79108.pdf Restricted Access | Restricted Access | 338.75 kB | Adobe PDF | View/Open |
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