Roslan, Teh Raihana Nazirah (2017) On the pricing of forward-start variance swaps with stochastic volatility and stochastic interest rate. Far East Journal of Mathematical Sciences (FJMS), 102 (12). pp. 3223-3240. ISSN 09720871

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Abstract

Variance swaps have gained an immense recognition in the financial market based on the tremendous spike in its trading volume since late 1990s. Being categorized under volatility derivatives, the substance of variance swaps can be related to the vital role of volatility in making investment decisions. In this paper, the price of discretely-sampled forward-start variance swaps is evaluated using an equity-interest rate hybrid model. The modeling framework involves an extension of the Heston stochastic volatility model, which is combined with the dynamics of the Cox-Ingersoll-Ross (CIR) stochastic interest rate model. Focus is given on the forward-start nature, identified by the starting time of the sampling period being a future date. Previous studies on variance swaps were mainly focusing on instantaneous-start variance swaps, whereas in reality, most of traded variance swaps

Item Type:	Article
Uncontrolled Keywords:	Heston-CIR hybrid model, realized variance, stochastic interest rate, stochastic volatility, variance swap.
Subjects:	Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Divisions:	School of Quantitative Sciences
Depositing User:	Mrs. Norazmilah Yaakub
Date Deposited:	17 Jul 2019 06:52
Last Modified:	17 Jul 2019 06:52
URI:	https://repo.uum.edu.my/id/eprint/26234

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