The effects of stochastic volatility, jump clustering, and regime switching are considered when pricing variance swaps. This study established a two-stage procedure that simplifies the derivation by first isolating the regime switching from other stochastic sources. Based on this, a novel...

This paper is an extension to a recent paper Zhu and Lian (2009), in which a closed-form exact solution was presented for the price of variance swaps with a particular definition of the realized variance. Here, we further demonstrate that our approach is quite versatile and can be used for other...

In this paper, we present a highly efficient approach to price variance swaps with discrete sampling times. We have found a closed-form exact solution for the partial differential equation (PDE) system based on the Heston’s two-factor stochastic volatility model embedded in the framework...