Knocking out corridor variance

Amine Ahallal and Olaf Torne add a knock-out barrier to the standard corridor variance swap


Adding an up-and-out barrier to corridor variance swaps is a simple but powerful innovation that better matches the requirements of both issuers and investors. Amine Ahallal and Olaf Torné derive a replication formula, expressing knock-out corridor variance in terms of simple barrier options, and use this to write a pricing partial differential equation under stochastic volatility

A twist on the well-known corridor variance swap introduces a knock-out barrier on the

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