Fast Calibration of Options on Variance Swaps

42 Pages Posted: 28 Mar 2008 Last revised: 11 Apr 2008

See all articles by Daniel Alexandre Bloch

Daniel Alexandre Bloch

Université Paris VI Pierre et Marie Curie

Date Written: March 9, 2008

Abstract

Using the properties of the Affine and Quadratic models we derive the dynamic of the variance swaps. We then modify the option pricing approximation technique described by Bloch in Fast calibration of the Affine and Quadratic models in order to approximate the price of European options on variance swaps.

Using these results we derive approximations to the equivalent implied volatility surface and compute the Greeks. To conclude, we illustrate our approach in the one-factor Affine and Quadratic models.

Keywords: Option pricing approximation, Variance Swaps, Malliavin calculus, Affine and Quadratic models

Suggested Citation

Bloch, Daniel Alexandre, Fast Calibration of Options on Variance Swaps (March 9, 2008). Available at SSRN: https://ssrn.com/abstract=1113630 or http://dx.doi.org/10.2139/ssrn.1113630

Daniel Alexandre Bloch (Contact Author)

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

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