Economics, Econometrics and Finance
7 years ago

Jump risks drive up variance swap values in financial markets!

arXiv (Cornell University)
Pricing variance swaps under Levy process with stochastic volatility and CIR interest rate
Ben-Zhang Yang, Yue Jia, Nan‐jing Huang

Paper Summary

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The article discusses how the price of variance swaps in the financial market is affected by stochastic interest rates and stock volatility with jumps. By using mathematical models, the researchers found a way to calculate the fair price of variance swaps, showing that their values are influenced by both interest rates and jump risks.