Introduction to Variance Swaps

Sebastien Bossu introduces the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader

The purpose of this article is to introduce the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader.

Section 1 gives general details about variance swaps and their applications.

Section 2 explains in ‘intuitive’ financial mathematics terms how variance swaps
are hedged and priced.

Logged-in members can download the article by clicking the link below. To log in or register visit here.

Related Posts

Volatility: Time and Black–Scholes–Merton The formalism of Black–Scholes–Merton knows of no such thing as the past or the future. When it models the stochastic process of the underlying as...
The Volatility Smile Problem: From Within The Smile Problem is not a falsification of the BSM model ... The smile problem is produced from inside. In the following, I will say what the smi...
Volatility Voodoo Unfortunately, most of the pious pronouncements about financial market volatility are nothing more than voodoo.   Private Content for Wi...
Finformatics – Rootless Vol: Wilmott Magazin... One of the strangest features of Brownian motion is that the parameter that causes all the uncertainty is not supposed to be uncertain... Logged-in...
The Irony in the Variance Swaps: Wilmott Magazine ... Irony, according to the Oxford English Dictionary, is (a) a figure of speech in which the intended meaning is the opposite of that expressed by the wo...
Monte Carlo in Esperanto This article shows how a simple parser environment in Excel/VBA could be used to perform single and multi-dimensional Monte Carlo. The clsMathParser i...
Numerical Methods for the Markov Functional Model The Libor Market Model of Brace Gatarek and Musiela (BGM) (1997) is the market standard model for pricing and hedging exotic interest rate derivat...
A Generalised Procedure for Locating the Optimal C... The fundamental concepts that shape modern capital structuring theory were first put together by Modigliani and Miller (1958) in a series of proposit...
111116_bossu