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Variance Swap Replication: Discrete or Continuous?

7 Pages Posted: 22 Feb 2015 Last revised: 17 Mar 2015

Fabien Le Floc'h

Calypso Technology; Independent

Date Written: March 15, 2015

Abstract

The popular replication formula to price variance swaps assumes continuity of traded option strikes. In practice, however there is only a discrete set of option strikes traded on the market. We present here different discrete replication strategies and explain why the continuous replication price is more relevant.

Keywords: variance swap, volatility, derivatives, replication, finance

Suggested Citation

Le Floc'h, Fabien, Variance Swap Replication: Discrete or Continuous? (March 15, 2015). Available at SSRN: https://ssrn.com/abstract=2567398 or http://dx.doi.org/10.2139/ssrn.2567398

Fabien Le Floc'h (Contact Author)

Calypso Technology ( email )

106 rue de la Boetie
Paris, 75008
France

Independent ( email )

France

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