Carr kicks off quant presentations at Risk USA in Boston

Peter Carr, recipient of Risk 's 2003 quant of the year award, discussed the pricing and hedging of volatility derivatives in the first of a series of quantitative modelling talks at Risk USA today.

It has been known for more than a decade that derivatives with a payoff dependent on variance, that is, the square of volatility, can be replicated with a portfolio of vanilla derivatives. Traditionally it was thought that derivatives with payoffs that depend on variance non-linearly, such as volatility swaps, could not be replicated robustly. So robust risk management of volatility swaps - which are actively traded in the over-the-counter (OTC) equity and currency markets has been problematic.


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