Modeling and Pricing of Variance and Volatility Swaps for Stochastic Volatilities Driven by Fractional Brownian Motion

21 Pages Posted: 7 Aug 2009 Last revised: 24 Mar 2011

Date Written: August 4, 2009

Abstract

In this paper, we study financial markets with stochastic volatilities driven by fractional Brownian motion with Hurst index H>1/2. Our models include fractional versions of Ornstein-Uhlenbeck, Vasicek, geometric Brownian motion and continuous-time GARCH models. We price variance and volatility swaps for above-mentioned models.

Keywords: fractional stochastic volatility, variance and volatility swaps, fractional Ornstein-Uhlenbeck process, fractional Vasicek process, fractional geometric Brownian motion, fractional continuous-time GARCH model

JEL Classification: C63

Suggested Citation

Swishchuk, Anatoliy V., Modeling and Pricing of Variance and Volatility Swaps for Stochastic Volatilities Driven by Fractional Brownian Motion (August 4, 2009). Available at SSRN: https://ssrn.com/abstract=1444016 or http://dx.doi.org/10.2139/ssrn.1444016

Anatoliy V. Swishchuk (Contact Author)

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada