Pricing variance swaps with stochastic volatility
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Following the pricing approach proposed by Zhu & Lian (2009), we present an exact solution for pricing variance swaps with the realized variance in the payoff function being a logarithmic return of the underlying asset at some pre-speci¯ed discrete sampling points. Our newly-found pricing formula is based on the Heston's (1993) two-factor stochastic volatil- ity model. The discovery of this exact and closed-form solution has signi¯cantly improved the computational efficiency involved in computing the value of variance swaps with discrete sampling points.
DateJuly 1, 2009
SourceLecture Notes in Engineering and Computer Science: Proceedings of The World Congress on Engineering 2009, WCE 2009, London, U.K., vol. II, pp.1359-1364
Item TypeConference Contribution
PublisherIAENG/Newswood Limited/International Association of Engineers (IAENG)