A Time-Dependent Variance Model for Pricing Variance and Volatility Swaps

Analytic solutions are found for prices of variance and volatility swaps under a new time-dependent stochastic model for the dynamics of variance. The main features of the new stochastic differential equation are (1) an empirically validated cν3/2 diffusion term and (2) a free function of time as a moving target in a reversion term, allowing additional flexibility for model calibration against market data.

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Year of publication:	2011
Authors:	Goard, Joanna
Published in:	Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 18.2011, 1, p. 51-70
Publisher:	Taylor & Francis Journals
Subject:	variance swap \| volatility swap \| stochastic variance

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009279106