Technical paper/Variance swaps
The contractual dividend bleed
Models for dividend protected options need to compensate for valuation mismatches
Knocking out corridor variance
Amine Ahallal and Olaf Torne add a knock-out barrier to the standard corridor variance swap
Local variance gamma revisited
In this paper, the authors propose a new method of constructing volatility surfaces for foreign exchange options.
Efficient pricing and super-replication of corridor variance swaps and related products
This paper proposes a method for overhedging weighted variance using only a finite number of maturities.
Valuation of options on discretely sampled variance: a general analytic approximation
In this paper the authors provide a comprehensive treatment of the discretization effect under general stochastic volatility dynamics.
Pricing and hedging variance swaps on a swap rate
A pricing tool for fixed-income volatility products is introduced
An easy-to-hedge covariance swap
An easy-to-hedge covariance swap
Bayesian lessons for payout structuring
Bayesian lessons for payout structuring
The value of a variance swap – a question of interest
Pricing equity variance swaps is well understood in the case of deterministic interest rates, but particularly for longer-dated swaps the stochastic nature of the rate cannot be ignored. Here, Per Hörfelt and Olaf Torné derive the fair strike when both…
Smile dynamics III
In two articles published in 2004 and 2005 in Risk, Lorenzo Bergomi assessed the structural limitations of existing models for equity derivatives and introduced a new model based on the direct modelling of the joint dynamics of the spot and the implied…
Smile dynamics III
In two articles published in 2004 and 2005 in Risk, Lorenzo Bergomi assessed the structural limitations of existing models for equity derivatives and introduced a new model based on the direct modelling of the joint dynamics of the spot and the implied…
Variance swaps under no conditions
Conditional variance swaps are claims on realised variance that is accumulated when the underlying asset price stays within a certain range. Being highly sensitive to movements in both asset price and its variance, they require a very reliable model for…
Variance swaps and non-constant vega
Variance swaps have gained in popularity due to their ability to provide investors with purevolatility exposure – a fairly stable gamma exposure despite changes in the value of theunderlying. The vega exposure of this product, however, varies linearly…
Smile dynamics II
In an article published in Risk in September 2004, Lorenzo Bergomi highlighted how traditionalstochastic volatility and jump/Lévy models impose structural constraints on the relationshipbetween the forward skew, the spot/volatility correlation and the…
Corridor variance swaps
This article studies a recent variation of a variance swap called a corridor variance swap (CVS). For this swap, returns are not counted in the realised variance calculation if the reference index level is outside some specified corridor. CVSs allow…
Volatility swaps made simple
Volatility