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Property Derivatives: The Next Big Thing (Finally)?: Wilmott Magazine Article
Derek Nesbitt 433 Views

In this article we discuss the growth of the Property Derivative market, with an emphasis on the inherent difficulties in building standard pricing models for derivatives on an illiquid market such as real estate. We begin with an overview of the development of the property derivative market in recent years, and the impact of recent events relating to property valuations.

Modelling and Pricing of Variance Swaps for Stochastic Volatilities with Delay
Anatoliy Swishchuk 2172 Views

Variance swaps for financial markets with underlying asset and stochastic volatilities with delay are modelled and priced in this paper. We found some analytical close forms for expectation and variance of the realized continuously sampled variance for stochastic volatility with delay both in stationary regime and in general case. The key features of the stochastic volatility model with delay are the following: i) continuous-time analogue of discrete-time GARCH model; ii) mean-reversion; iii) contains the same source of randomness as stock price; iv) market is complete; v) incorporates the expectation of log-return. We can valuate variance swap with delay both in risk-neutral world and in physical world, which is also one of the main feature of stochastic volatility model with delay. We also present an upper bound for delay as a measure of risk. As applications, we provide two numerical examples using S&P60 Canada Index (1998–2002) and S&P500 Index (1990–1993) to price variance swaps with delay. Variance swaps for stochastic volatility with delay is very similar to variance swaps for stochastic volatility in Heston model, but simplier to model and to price it..

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