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Options on realized variance in Log-OU models


Drimus, Gabriel G (2012). Options on realized variance in Log-OU models. Applied Mathematical Finance, 19(5):477-494.

Abstract

We study the pricing of options on realized variance in a general class of Log-OU stochastic volatility models. The class includes several important models proposed in the literature. Having as common feature the log-normal law of instantaneous variance, the application of standard Fourier-Laplace transform methods is not feasible. We derive extensions of Asian pricing methods, to obtain bounds, in particular, a very tight lower bound for options on realized variance.

Abstract

We study the pricing of options on realized variance in a general class of Log-OU stochastic volatility models. The class includes several important models proposed in the literature. Having as common feature the log-normal law of instantaneous variance, the application of standard Fourier-Laplace transform methods is not feasible. We derive extensions of Asian pricing methods, to obtain bounds, in particular, a very tight lower bound for options on realized variance.

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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:2012
Deposited On:20 Feb 2012 13:38
Last Modified:05 Apr 2016 15:24
Publisher:Taylor & Francis
ISSN:1350-486X
Publisher DOI:https://doi.org/10.1080/1350486X.2011.639951
Other Identification Number:merlin-id:6012

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