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On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate

Variance swaps have gained an immense recognition in the financial market based on the tremendous spike in its trading volume since late 1990s. Being categorized under volatility derivatives, the substance of variance swaps can be related to the vital role of volatility in making investment decision...

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Main Author: Roslan, Teh Raihana Nazirah
Format: Article
Language:English
Published: Pushpa Publishing House 2017
Subjects:
QA75 Electronic computers. Computer science
Online Access:http://repo.uum.edu.my/26234/1/FJMS%20102%2012%202017%203223%203240.pdf
http://repo.uum.edu.my/26234/
http://doi.org/10.17654/MS102123223
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spelling my.uum.repo.262342019-07-17T06:52:32Z http://repo.uum.edu.my/26234/ On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate Roslan, Teh Raihana Nazirah QA75 Electronic computers. Computer science Variance swaps have gained an immense recognition in the financial market based on the tremendous spike in its trading volume since late 1990s. Being categorized under volatility derivatives, the substance of variance swaps can be related to the vital role of volatility in making investment decisions. In this paper, the price of discretely-sampled forward-start variance swaps is evaluated using an equity-interest rate hybrid model. The modeling framework involves an extension of the Heston stochastic volatility model, which is combined with the dynamics of the Cox-Ingersoll-Ross (CIR) stochastic interest rate model. Focus is given on the forward-start nature, identified by the starting time of the sampling period being a future date. Previous studies on variance swaps were mainly focusing on instantaneous-start variance swaps, whereas in reality, most of traded variance swaps Pushpa Publishing House 2017 Article PeerReviewed application/pdf en http://repo.uum.edu.my/26234/1/FJMS%20102%2012%202017%203223%203240.pdf Roslan, Teh Raihana Nazirah (2017) On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate. Far East Journal of Mathematical Sciences (FJMS), 102 (12). pp. 3223-3240. ISSN 09720871 http://doi.org/10.17654/MS102123223 doi:10.17654/MS102123223
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutionali Repository
url_provider http://repo.uum.edu.my/
language English
topic QA75 Electronic computers. Computer science
spellingShingle QA75 Electronic computers. Computer science
Roslan, Teh Raihana Nazirah
On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
description Variance swaps have gained an immense recognition in the financial market based on the tremendous spike in its trading volume since late 1990s. Being categorized under volatility derivatives, the substance of variance swaps can be related to the vital role of volatility in making investment decisions. In this paper, the price of discretely-sampled forward-start variance swaps is evaluated using an equity-interest rate hybrid model. The modeling framework involves an extension of the Heston stochastic volatility model, which is combined with the dynamics of the Cox-Ingersoll-Ross (CIR) stochastic interest rate model. Focus is given on the forward-start nature, identified by the starting time of the sampling period being a future date. Previous studies on variance swaps were mainly focusing on instantaneous-start variance swaps, whereas in reality, most of traded variance swaps
format Article
author Roslan, Teh Raihana Nazirah
author_facet Roslan, Teh Raihana Nazirah
author_sort Roslan, Teh Raihana Nazirah
title On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
title_short On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
title_full On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
title_fullStr On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
title_full_unstemmed On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
title_sort on the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate
publisher Pushpa Publishing House
publishDate 2017
url http://repo.uum.edu.my/26234/1/FJMS%20102%2012%202017%203223%203240.pdf
http://repo.uum.edu.my/26234/
http://doi.org/10.17654/MS102123223
_version_ 1644284544013041664
score 13.211869

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