Introduction to Variance Swaps

Sebastien Bossu introduces the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader

The purpose of this article is to introduce the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader.

Section 1 gives general details about variance swaps and their applications.

Section 2 explains in ‘intuitive’ financial mathematics terms how variance swaps
are hedged and priced.

Logged-in members can download the article by clicking the link below. To log in or register visit here.

Related Posts

The Irony in the Variance Swaps Irony, according to the Oxford English Dictionary, is (a) a figure of speech in which the intended meaning is the opposite of that expressed by th...
What is Implied by Implied Volatility? Word and concept Implied volatility is not just a word or a concept. As a word, what is implied by implied volatility – what “implied volatili...
Volatility: Time and Black–Scholes–Merton The formalism of Black–Scholes–Merton knows of no such thing as the past or the future. When it models the stochastic process of the underlying as...
The Volatility Smile Problem: From Within The Smile Problem is not a falsification of the BSM model ... The smile problem is produced from inside. In the following, I will say what the smi...
Volatility Voodoo Unfortunately, most of the pious pronouncements about financial market volatility are nothing more than voodoo.   Private Content for Wi...
Order Statistics for Value at Risk Estimation and ... We apply order statistics to the setting of VaR estimation. Here techniques like historical and Monte Carlo simulation rely on using the k-th heaviest...
Poker as a Lottery Doyle Brunson , two-time winner of the World Series of Poker main event, has likened a poker tournament to a lottery in which more skilled players...
Building Your Wings on the Way Down Ray Bradbury famously defined “living at risk” as jumping off a cliff and building your wings on the way down. Too many financial risk managers wh...
111116_bossu