Pricing Volatility and Variance Swaps by Implied Trees

• Main Authors: Cheng Wu, 吳箏
• Other Authors: 呂育道
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/70657449833032245627

碩士 === 國立臺灣大學 === 財務金融學研究所 === 96 === Equity-index volatility and variance swaps offer an efficient way for traders to take synthetic positions in pure volatility. General pricing method for volatility and variance swaps uses the replication method in Demeterfi, Derman, Kamal, and Zou (1999). In this thesis, we try to use the more direct and intuitive way to price volatility and variance swaps. Specifically, we will use implied trees introduced in Derman, Kani, Chriss (1994) and Derman, Kani (1996) which can match the implied local volatilities and variances. Then we employ these local volatilities and variances to price volatility and variance swaps. After using the implied tree to price, we also compare the result of this method to the general pricing method. We find out that using this method can also get the value of volatility and variance swaps just similar to the general method.