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: Suggested Citation
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