Volatility Markets: Consistent Modelling, Hedging and Practical Implementation (Dissertation)

181 Pages Posted: 9 Apr 2008 Last revised: 13 Nov 2010

Date Written: June 26, 2006

Abstract

This is the revised version of my dissertation.

The dissertation covers pricing and hedging of volatiluty derivatives, but also a few other topics.

It contains extended material on consistent variance curves, a proof that "smooth" diffusion markets are always complete, comments on pricing in local martingale models, fitting models to the market (general, Bergomi, Dupire, Heston), Heston-type models with semi-closed forms, algorithms to perform parameter hedging with linear programming, computation of variance, gamma and entropy swaps, expensive martingales, and the implementation of a particular four-factor variance curve model.

This updated version of the dissertation incorporates further results presented since the publication of the thesis itself, in particular on the subject of "fitted models".

Keywords: Variance Swaps, Consistent Variance Curve, Hedging, Complete Market, Gamma Swaps, Fitted Heston

JEL Classification: D89

Suggested Citation

Buehler, Hans, Volatility Markets: Consistent Modelling, Hedging and Practical Implementation (Dissertation) (June 26, 2006). Available at SSRN: https://ssrn.com/abstract=1118245 or http://dx.doi.org/10.2139/ssrn.1118245

Hans Buehler (Contact Author)

JP Morgan ( email )

London
United Kingdom

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