On the Convexity Correction Approximation in Pricing Volatility Swaps and VIX Futures

DOI10.1142/S1793005718500230MaRDI QIDQ5874583zbMATH OpenOpenAlexFDO

Authors Guang-Hua Lian, Song-Ping Zhu

Publication date 8 February 2023

Published in New Mathematics and Natural Computation (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1142/s1793005718500230

zbMATH Keywords

convexity correction approximationHeston modelstochastic volatilityvolatility swaps

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

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Cites work

• A closed-form exact solution for pricing variance swaps with stochastic volatility
• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• A theory of the term structure of interest rates
• GARCH and volatility swaps
• Paul Wilmott on quantitative finance. 3 Vols. With CD-ROM
• Pricing swaps and options on quadratic variation under stochastic time change models -- discrete observations case
• Pricing Volatility Swaps Under Heston's Stochastic Volatility Model with Regime Switching
• Stochastic volatility and the goodness-of-fit of the Heston model
• THE EFFECT OF JUMPS AND DISCRETE SAMPLING ON VOLATILITY AND VARIANCE SWAPS
• Transform Analysis and Asset Pricing for Affine Jump-diffusions
• Valuing Volatility and Variance Swaps for a Non‐Gaussian Ornstein–Uhlenbeck Stochastic Volatility Model

Cited in

(9)

• Convexity adjustment for constant maturity swaps in a multi-curve framework
• Convexity bias in the pricing of Eurodollar swaps
• Edgeworth corrections for spot volatility estimator
• Analytically pricing volatility swaps and volatility options with discrete sampling: nonlinear payoff volatility derivatives
• Analytical approximation to constant maturity swap convexity corrections in a multi-factor SABR model
• Mathematical foundation of convexity correction
• Closed-form convexity and cross-convexity adjustments for Heston prices
• Weak approximations and VIX option price expansions in forward variance curve models
• Analytically pricing volatility options and capped/floored volatility swaps with nonlinear payoffs in discrete observation case under the Merton jump-diffusion model driven by a nonhomogeneous Poisson process

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