Variance Swap Replication: Discrete or Continuous?

Fabien Le Floch

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

The popular replication formula to price variance swaps assumes continuity of traded option strikes. In practice, however, there is only a discrete set of option strikes traded on the market. We present here different discrete replication strategies and explain why the continuous replication price is more relevant.
Original languageEnglish
Article number11
Pages (from-to)1-15
Number of pages15
JournalJournal of Risk and Financial Management
Volume11
Issue number1
DOIs
Publication statusPublished - 2018

Keywords

  • variance swap
  • volatility
  • derivatives
  • quantitative finance
  • OA-Fund TU Delft

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