Volatility Swap Pricing and Variance Swap Pricing
under the Mean-Reverting Gaussian Model

Rui Duan

doi:https://doi.org/10.14445/22315373/IJMTT-V66I10P501

International Journal of Mathematics Trends and Technology

Research Article | Open Access | Download PDF

Volume 66 | Issue 10 | Year 2020 | Article Id. IJMTT-V66I10P501 | DOI : https://doi.org/10.14445/22315373/IJMTT-V66I10P501

Volatility Swap Pricing and Variance Swap Pricing under the Mean-Reverting Gaussian Model

Rui Duan

Abstract

In the past few decades, stochastic volatility models have been very popular in the pricing of financial derivatives.Volatility derivatives are a special kind of financial derivatives. A volatility swap and a variance swap discussed in this section are both volatility derivatives.Their essence is a forward contract whose value depends on the future volatility level of the underlying asset. This paper mainly uses the risk-neutral pricing principle to derive the pricing formulas of a volatility swap and a variance swap under the mean-reverting Gaussian volatility model.

Keywords

mean-reverting Gaussian model, the risk-neutral pricing, volatility swap,variance swap.

References

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Citation :

Rui Duan, "Volatility Swap Pricing and Variance Swap Pricing under the Mean-Reverting Gaussian Model," International Journal of Mathematics Trends and Technology (IJMTT), vol. 66, no. 10, pp. 1-7, 2020. Crossref, https://doi.org/10.14445/22315373/IJMTT-V66I10P501