An Upper Bound For Volatility Swaps Pricing Under Stochastic Volatility Model With Jump-Diffusion

International Journal of Mathematics Trends and Technology (IJMTT)
© 2021 by IJMTT Journal
Volume-67 Issue-12
Year of Publication : 2021
Authors : Wen-Jun Du


MLA Style: Wen-Jun Du "An Upper Bound For Volatility Swaps Pricing Under Stochastic Volatility Model With Jump-Diffusion" International Journal of Mathematics Trends and Technology 67.12 (2021):72-77. 

APA Style: Wen-Jun Du(2021). An Upper Bound For Volatility Swaps Pricing Under Stochastic Volatility Model With Jump-Diffusion International Journal of Mathematics Trends and Technology, 67(12), 72-77.

During the development of volatility derivatives, volatility swaps become one of the most popular volatility derivatives. Volatility swaps are a kind of volatility derivatives and its essence are forward contracts on annualized realized volatility that provide an easy way for investors to trade future realized volatility against the current implied volatility. This article discusses the valuation of discretely sampled volatility swaps within the frame of Heston’s stochastic volatility model under jump-diffusion model. Due to the independence of a Brownian motion and a compound Poisson process, the realized volatility can be decomposed into two parts. On the jump diffusion model, we introduce the S.G.Kou model with jump sizes double exponentially distributed, and finally work out an upper bound of fair strike price for volatility-average swaps pricing.


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Keywords : volatility swaps, stochastic volatility, jump-diffusion, double exponential distribution.