Header

UZH-Logo

Maintenance Infos

Valuations of options on discretely sampled variance: A general analytic approximation


Drimus, Gabriel G; Farkas, W; Gourier, Elise (2016). Valuations of options on discretely sampled variance: A general analytic approximation. Journal of Computational Finance, 20(2):39-66.

Abstract

The values of options on realized variance are significantly impacted by the discrete sampling of realized variance and may be substantially higher than the values of options on continuously sampled variance (or, quadratic variation). Under arbitrary stochastic volatility dynamics, we analyze the discretization effect and obtain a simple analytical correction term to be applied to the value of options on continuously sampled variance. Our final result is remarkably compact and allows for a straightforward implementation in many of the standard stochastic volatility models proposed in the literature.

Abstract

The values of options on realized variance are significantly impacted by the discrete sampling of realized variance and may be substantially higher than the values of options on continuously sampled variance (or, quadratic variation). Under arbitrary stochastic volatility dynamics, we analyze the discretization effect and obtain a simple analytical correction term to be applied to the value of options on continuously sampled variance. Our final result is remarkably compact and allows for a straightforward implementation in many of the standard stochastic volatility models proposed in the literature.

Statistics

Altmetrics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2016
Deposited On:23 Nov 2016 17:12
Last Modified:01 Jan 2017 06:15
Publisher:Incisive Media
ISSN:1460-1559
Free access at:Related URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.21314/JCF.2016.314
Related URLs:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1700151 (Organisation)
Other Identification Number:merlin-id:9332

Download

Full text not available from this repository.
View at publisher