Volatility Derivatives

Posted: 4 Jun 2010

See all articles by Peter Carr

Peter Carr

New York University Finance and Risk Engineering

Roger Lee

University of Chicago

Date Written: December 2009

Abstract

Volatility derivatives are a class of derivative securities where the payoff explicitly depends on some measure of the volatility of an underlying asset. Prominent examples of these derivatives include variance swaps and VIX futures and options. We provide an overview of the current market for these derivatives. We also survey the early literature on the subject. Finally, we provide relatively simple proofs of some fundamental results related to variance swaps and volatility swaps.

Suggested Citation

Carr, Peter P. and Lee, Roger, Volatility Derivatives (December 2009). Annual Review of Financial Economics, Vol. 1, pp. 319-339, 2009. Available at SSRN: https://ssrn.com/abstract=1599422 or http://dx.doi.org/10.1146/annurev.financial.050808.114304

Peter P. Carr (Contact Author)

New York University Finance and Risk Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States
9176217733 (Phone)

HOME PAGE: http://engineering.nyu.edu/people/peter-paul-carr

Roger Lee

University of Chicago ( email )

5734 S University Ave
Chicago, IL 60637
United States

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