Variance Swaps Under No Conditions

Risk Magazine, pp. 82-87, March 2007

12 Pages Posted: 1 Jun 2009

Date Written: January 23, 2007

Abstract

Conditional variance swaps are claims on realized variance which is accumulated when the underlying asset price stays within a certain range. Being highly sensitive to movements in both asset price and its variance, they require a very reliable model for pricing and risk-managing. In this article we apply the Heston stochastic volatility model, which is by now a widely accepted pricing model in many markets, to derive closed-form solutions for pricing and risk-managing of conditional variance swaps.

Keywords: variance swap, conditional variance swaps, volatility derivatives, Heston model, stochastic volatility

JEL Classification: C00, G00

Suggested Citation

Sepp, Artur, Variance Swaps Under No Conditions (January 23, 2007). Risk Magazine, pp. 82-87, March 2007, Available at SSRN: https://ssrn.com/abstract=1412338

Artur Sepp (Contact Author)

Quantica Capital AG ( email )

Zurich
Switzerland

HOME PAGE: http://artursepp.com

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