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On the pricing and hedging of volatility derivatives

Abstract:

We consider the pricing of a range of volatility derivatives, including volatility and variance swaps and swaptions. Under risk-neutral valuation we provide closed-form formulae for volatility-average and variance swaps for a variety of diffusion and jump-diffusion models for volatility. We describe a general partial differential equation framework for derivatives that have an extra dependence on an average of the volatility. We give approximate solutions of this equation for volatility produ...

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Sam Howison More by this author
Avraam Rafailidis More by this author
Henrik Rasmussen More by this author
Publication date:
2003-07-18
URN:
uuid:4d6b447f-1168-48e2-836f-c07a361c586d
Local pid:
oai:eprints.maths.ox.ac.uk:100

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