A note on contracts on quadratic variation.
Given a Black stochastic volatility model for a future F, and a function g, we show that the price of [Formula: see text] can be represented by portfolios of put and call options. This generalizes the classical representation result for the variance swap. Further, in a local volatility model, we giv...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Public Library of Science (PLoS)
2017-01-01
|
| Series: | PLoS ONE |
| Online Access: | http://europepmc.org/articles/PMC5363854?pdf=render |
| Summary: | Given a Black stochastic volatility model for a future F, and a function g, we show that the price of [Formula: see text] can be represented by portfolios of put and call options. This generalizes the classical representation result for the variance swap. Further, in a local volatility model, we give an example based on Dupire's formula which shows how the theorem can be used to design variance related contracts with desirable characteristics. |
|---|---|
| ISSN: | 1932-6203 |