Hedging (Co)Variance Risk with Variance Swaps
نویسندگان
چکیده
منابع مشابه
Hedging (Co)Variance Risk with Variance Swaps∗
Abstract In this paper we introduce a new criterion in order to measure the variance and covariance risks in financial markets. In an asset allocation framework with stochastic (co)variances, we consider the possibility to invest also in variance swaps, that are assets which span the volatility as well as the co-volatility risks. We provide explicit solutions for the portfolio optimization prob...
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A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with continuous paths it is well known that the variance swap payoff can be replicated exactly using a portfolio of puts and calls and a dynamic position in the asset. T...
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It is widely recognised that delta-hedged positions in options can be used to trade volatility. To facilitate volatility trading for their clients, several institutions routinely offer variance swaps. A variance swap is a financial contract that upon expiry pays the difference between a standard historical estimate of daily return variance and a fixed rate determined at inception. As in any swa...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2008
ISSN: 1556-5068
DOI: 10.2139/ssrn.1102521