Pricing and hedging of long dated variance swaps under a 3/2 volatility model

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:278

Article

Chan, Leunglung¹  Platen, Eckhard^2,3 

[1] Univ New S Wales, Sch Math & Stat, Sydney, NSW 2052, Australia

[2] Univ Technol Sydney, Finance Discipline Grp, Broadway, NSW 2007, Australia

[3] Univ Technol Sydney, Sch Math Sci, Broadway, NSW 2007, Australia

关键词: 3/2 volatility model;    Variance swap;    Numeraire portfolio;    Squared Bessel process;    Confluent hypergeometric functions;   

DOI  :  10.1016/j.cam.2014.09.032

来源: Elsevier

【 摘 要 】

This paper investigates the pricing and hedging of variance swaps under a 3/2 volatility model using explicit formulae. Pricing and hedging is performed under the benchmark approach, which only requires the existence of the numeraire portfolio. The growth optimal portfolio is used as numeraire together with the real world probability measure as pricing measure. This real world pricing concept provides minimal prices for variance swaps even when an equivalent risk neutral probability measure does not exist. (C) 2014 Elsevier B.V. All rights reserved.

【 授权许可】

Free