We develop analytical methodology for pricing and hedging options on the realized variance under the Heston stochastic variance model (1993) augmented with jumps in asset returns and variance. By employing generalized Fourier transform we obtain analytical solutions (up to numerical inversion of...

We analyse the effect of the discrete sampling on the valuation of options on the realized variance in the Heston (1993) stochastic volatility model. It has been known for a while (Buehler (2006)) that, even though the quadratic variance can serve as an approximation to the discrete variance for...