Zhenyu Cui

brooklyn college

United States

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Prices and Asymptotics for Discrete Variance Swaps
Abstract
We derive closed-form expressions for the fair strike of a discrete variance swap for a general time-homogeneous stochastic volatility model. In the special cases of Heston and Hull-White stochastic volatility models we give simple explicit expressions (improving Broadie and Jain (2008a) for the Heston case). We give conditions on parameters under which the fair strike of a discrete variance swap is higher or lower than the continuous variance swap. Interest rates and correlation between underlying price and its volatility are key elements in this analysis. We derive asymptotics for the discrete variance swaps and compare our results with those of Broadie and Jain (2008a), Jarrow et al. (2012) and Keller-Ressel (2011).
Bernard, C., and Z. Cui, "Prices and Asymptotics for Discrete Variance Swaps", SSRN.
Authors: Bernard
Cui
Coders: Bernard
Cui
Last update
11/22/2012
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