Valuing Futures and Options on Volatility
University of St. Gallen - Swiss Institute of Banking and Finance
Francis A. Longstaff
University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)
Journal of Banking & Finance, 1996, 985-1001; The Journal of Finance, 1995, 974-975
This paper derives simple closed-form expressions for volatility futures and option prices and examines their implications for the characteristics of these securities. We show that the properties of these volatility derivatives are fundamentally different from those of conventional options and futures contracts. This analysis also provides insights into the role that volatility derivatives may play in managing and hedging volatility risk in financial markets.
JEL Classification: G13Accepted Paper Series
Date posted: September 19, 2001
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