Model-independent hedging strategies for variance swaps
From MaRDI portal
(Redirected from Publication:693029)
Abstract: A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with continuous paths it is well known that the variance swap payoff can be replicated exactly using a portfolio of puts and calls and a dynamic position in the asset. This fact forms the basis of the VIX contract. But what if we are in the more realistic setting where the contract is based on discrete monitoring, and the underlying asset may have jumps? We show that it is possible to derive model-independent, no-arbitrage bounds on the price of the variance swap, and corresponding sub- and super-replicating strategies. Further, we characterise the optimal bounds. The form of the hedges depends crucially on the kernel used to define the variance swap.
Recommendations
- Model-independent lower bound on variance swaps
- Pricing and hedging contingent claims using variance and higher order moment swaps
- Arbitrage bounds for prices of weighted variance swaps
- Variance swaps, volatility swaps, hedging and bounds under multi-factor Heston stochastic volatility model
- Swap rate variance swaps
Cites work
- A closed-form exact solution for pricing variance swaps with stochastic volatility
- Discretely sampled variance and volatility swaps versus their continuous approximations
- Dynamic spanning without probabilities
- On the Distribution of Maxima of Martingale
- Robust hedging of barrier options.
- Robust hedging of the lookback option
- Studies in the theory of random processes. Translated from the Russian by Scripta Technica, Inc.
- THE EFFECT OF JUMPS AND DISCRETE SAMPLING ON VOLATILITY AND VARIANCE SWAPS
- THE RANGE OF TRADED OPTION PRICES
- The minimum maximum of a continuous martingale with given initial and terminal laws
- Variance swaps on time-changed Lévy processes
- Variation and share-weighted variation swaps on time-changed Lévy processes
Cited in
(51)- Supermartingale Brenier's theorem with full-marginals constraint
- Model-independent bounds for option prices -- a mass transport approach
- A trajectorial interpretation of Doob's martingale inequalities
- Maximizing functionals of the maximum in the Skorokhod embedding problem and an application to variance swaps
- It only takes a few moments to hedge options
- Fine properties of the optimal Skorokhod embedding problem
- Martingale optimal transport and robust hedging in continuous time
- Consistent variance curve models
- Pathwise versions of the Burkholder-Davis-Gundy inequality
- Hedging European derivatives with the polynomial variance swap under uncertain volatility environments
- The space of outcomes of semi-static trading strategies need not be closed
- Weighted variance swaps hedge against impermanent loss
- Model uncertainty, recalibration, and the emergence of delta-vega hedging
- Pricing variance swaps on time-changed Markov processes
- THE VARIANCE SWAP CONTRACT UNDER THE CEV PROCESS
- Short Communication: A Primer on Perpetuals
- Robust replication of volatility and hybrid derivatives on jump diffusions
- An explicit martingale version of the one-dimensional Brenier theorem
- A general property for time aggregation
- Heston model: the variance swap calibration
- Monotone martingale transport plans and Skorokhod embedding
- Analysis of variance based instruments for Ornstein-Uhlenbeck type models: swap and price index
- Semi-static variance-optimal hedging in stochastic volatility models with Fourier representation
- A solution to the Monge transport problem for Brownian martingales
- Bounds for VIX futures given S{\&}P 500 smiles
- Improved robust price bounds for multi-asset derivatives under market-implied dependence information
- Path dependence and biases in the even swaps decision analysis method
- Multi-asset stochastic local variance contracts
- No-arbitrage bounds on two one-touch options
- Pricing and hedging of long dated variance swaps under a \(3/2\) volatility model
- Quadratic variation, models, applications and lessons
- Swap rate variance swaps
- A model-free version of the fundamental theorem of asset pricing and the super-replication theorem
- Robust price bounds for the forward starting straddle
- Tightening robust price bounds for exotic derivatives
- Arbitrage bounds for prices of weighted variance swaps
- Hedging variance options on continuous semimartingales
- Pathwise superreplication via Vovk's outer measure
- MULTIVARIATE DISTRIBUTIONS FOR FINANCIAL RETURNS
- An explicit martingale version of the one-dimensional Brenier's theorem with full marginals constraint
- Martingale optimal transport in the Skorokhod space
- Variance swaps on time-changed Lévy processes
- Hedging with small uncertainty aversion
- Model uncertainty and the pricing of American options
- Moment swaps
- Hedging (co)variance risk with variance swaps
- Variance swaps, volatility swaps, hedging and bounds under multi-factor Heston stochastic volatility model
- Tightness and duality of martingale transport on the Skorokhod space
- Robust hedging of options on a leveraged exchange traded fund
- Model-independent lower bound on variance swaps
- Root to Kellerer
This page was built for publication: Model-independent hedging strategies for variance swaps
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q693029)
