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Pricing Volatility and Variance Swaps by Implied Trees
Date Issued
2008
Date
2008
Author(s)
Wu, Cheng
Abstract
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.
Subjects
volatility
variance
volatility swap
variance swap
implied tree
Type
thesis
File(s)
No Thumbnail Available
Name
ntu-97-R95723029-1.pdf
Size
23.32 KB
Format
Adobe PDF
Checksum
(MD5):dd69e531de946609d79953a939cbb983