Questions tagged [variance-swap]

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A lower bound for variance swap strike

There is a famous formula for the variance swap strike that reads $$ K_{var}^2 = \int_{-\infty}^\infty dz\, n(z) I^2(z) $$ where $I(z)$ is the Black-Scholes implied volatility function, $$ n(z) = \...
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0 votes
1 answer
279 views

Derive the price of log contract

I am reading the Neuberger [1999] Log Contract paper and really confused on the log contract. So if the payoff is $\ln(S_T)$, then we can easily solve the price of such derivative: $$f_t^s = e^{-r(T-t)...
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3 votes
1 answer
290 views

Market price versus theoretical price of varswaps

When I traded varswaps several years ago, for some indices there was a significant mismatch between market price and theoretical price. The theoretical price assumes continuous monitoring and infinite ...
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4 votes
2 answers
449 views

Different types of swaps and generalized pricing structure - correlation swap, variance swap, volatility swap, gamma swap, etc

I am very new to derivatives pricing, and I am currently trying to learn these on my own. As far as I can tell, most of the derivatives that are simple (in the sense of having a constant strike that ...
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Practical Effect of Time-Decay on Variance Swaps?

I want to implement a long vol hedging strategy by rolling spot variance swaps every month. This would be done through replicating spot VIX using the definition of VIX as a portfolio of OTM one-month ...
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0 votes
1 answer
482 views

Capped Variance Swap // Fair volatility using replication portfolio

I know that the Heston volatility model should be the best approach for computing fair volatility on capped variance swap but is there a way to estimate it from replication portfolio? What I call ...
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  • 3
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1 answer
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Structured question on mark-to-market value of a variance swap

anyone can provide solution or some idea to the following question? thanks
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  • 167
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0 answers
103 views

VIX and Realised Volatility Scaling

I have calculated the VIX implied volatility according to the CBOE Whitepaper: \begin{equation*} \sigma^2 = \frac{2}{T} \left(\sum_i \frac{\Delta K_i}{K_i^2} Q(K_i) e^{rT} \right) - \frac{1}{T} \...
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2 votes
1 answer
379 views

Deriving the VIX formula

I am having trouble filling in a few steps in the derivation. From Martin (2017), we get the following assumptions: Constant continuously compounded rate $r$; The underlying doesn't pay dividens; ...
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Replicating a payoff $\frac{1}{2} \sigma_t^2 dt$

I need, for theoretical reasons, to generate a payoff $\frac{1}{2} \sigma_t^2 dt$ where $\sigma_t$ is the instantaneous volatility of say an equity index, and $dt$ is an infinitesimal time interval. ...
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0 votes
0 answers
41 views

Explicit formula replication of variance swap using vanilla option under black and scholes model with nonzero risk-free rate and nonzero dividend [duplicate]

I didn't find the formula for the following portfolio (variance swap replication) with nonzero risk-free rate and nonzero dividend under black and scholes model : (1) I found formula and proof only ...
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0 votes
1 answer
198 views

Replication of variance swap using vanilla option under black and scholes model with nonzero risk-free rate and nonzero dividend [duplicate]

I didn't find the formula for the following portfolio (variance swap replication) with nonzero risk-free rate and nonzero dividend under black and scholes model : I found formula and proof only with ...
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3 votes
1 answer
61 views

Variance Swaps for IR products

Just a question here. I am aware that variance swaps for equity products are quite common in the market. However, will anyone be familiar with variance swaps on swap rates in the market? Are they ...
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  • 176
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435 views

Variance swap = delta hedged strip of options

Is there a paper that explicitly shows/demonstrates that a variance swap can be replicated by delta-hedging a strip of options? Thus far I have not found anything: papers mention it in passing ...
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1 vote
0 answers
167 views

Margin requirements for OTC variance swaps

It is not clear for me the mechanism of margin requirements for OTC variance swaps. I don't see in supplementary information to OTC Swaps the rules of margin maintenance or initial margin or ...
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