TY - JOUR
T1 - On pricing variance swaps in discretely-sampled with high volatility model
AU - El-Khatib, Youssef
AU - Alshamsi, Mariam Zuwaid
AU - Fan, Jun
N1 - Funding Information:
The authors would like to express their sincere appreciation to the United Arab Emirates University Research Office for the financial support UPAR Grant No.31S369.
Publisher Copyright:
© 2021, Cankaya University. All rights reserved.
PY - 2021
Y1 - 2021
N2 - In this paper, we investigate valuation of discretely-sampled variance swaps in a financial asset price model with increase in volatility. More precisely, we consider a stochastic differential equation model with an additional parameter which augments volatility. This is to cover the impact of financial crunches on pricing a given asset. Under these settings, calculation of annualized delivery price of a variance swap is not sure in a closed form. Following the literature, the delivery price can be written as a finite sum of conditional expectations. We focus on the computation of these expectations and obtain some interesting results. This leads to a semi-analytical solution to the variance swaps pricing problems. We also show the advantage of our model.
AB - In this paper, we investigate valuation of discretely-sampled variance swaps in a financial asset price model with increase in volatility. More precisely, we consider a stochastic differential equation model with an additional parameter which augments volatility. This is to cover the impact of financial crunches on pricing a given asset. Under these settings, calculation of annualized delivery price of a variance swap is not sure in a closed form. Following the literature, the delivery price can be written as a finite sum of conditional expectations. We focus on the computation of these expectations and obtain some interesting results. This leads to a semi-analytical solution to the variance swaps pricing problems. We also show the advantage of our model.
KW - Discretely-sampled variance swaps
KW - High volatility mode
KW - Stochastic differential equations
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U2 - 10.53006/rna.908113
DO - 10.53006/rna.908113
M3 - Article
AN - SCOPUS:85108637115
SN - 2636-7556
VL - 4
SP - 105
EP - 115
JO - Results in Nonlinear Analysis
JF - Results in Nonlinear Analysis
IS - 2
ER -