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A note on contracts on quadratic variation

Carl Lindberg (Institutionen för matematiska vetenskaper)
PLoS ONE (1932-6203). Vol. 12 (2017), 3,
[Artikel, refereegranskad vetenskaplig]

Given a Black stochastic volatility model for a future F, and a function g, we show that the price of 1/2 integral(T)(0) g(t, F(t))F-2(t) sigma(2)(t)dt can be represented by portfolios of put and call options. This generalizes the classical representation result for the variance swap. Further, in a local volatility model, we give an example based on Dupire's formula which shows how the theorem can be used to design variance related contracts with desirable characteristics.



Denna post skapades 2017-05-17. Senast ändrad 2017-06-12.
CPL Pubid: 249397

 

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