RIS ID
35536
Abstract
Following the pricing approach proposed by Zhu & Lian [19], we present an exact solution for pricing variance swaps with the realized variance in the payoff function being a logarithmic return of the underlying asset at some pre-specified discrete sampling points. Our newly-found pricing formula is based on the Heston's [8] two-factor stochastic volatility model. The discovery of this exact and closed-form solution has significantly improved the computational efficiency involved in computing the value of variance swaps with discrete sampling points.
Link to publisher version (URL)
COinS
Publication Details
Zhu, S. & Lian, G. (2009). Pricing variance swaps with stochastic volatility. Proceedings of the World Congress on Engineering 2009 Vol II (pp. 1359-1364). United Kingdom:IAENG.