Realised volatility and variance: options via swaps

Volatility Options

In this article, we develop strategies for pricing and hedging options on realised variance and volatility. Our strategies have the following features.

- Readily available inputs. We can use vanilla options as pricing benchmarks and as hedging instruments. If variance or volatility swaps are available, then we use them as well. We do not need other inputs (such as parameters of the instantaneous volatility dynamics).

- Comprehensive and readily computable outputs. We derive explicit and readily