New model revolutionizes pricing of volatility swaps, impacting financial markets globally.
The article discusses a new way to price volatility swaps using a modified Heston model with a variable long-term volatility level. The researchers developed a formula to accurately and efficiently calculate volatility swap prices under this model. They found that the changing long-run variance level has a significant impact on volatility swap prices, showing how important it is to consider this factor in financial modeling.