Multi-asset generalized variance swaps in Barndorff-Nielsen and Shephard model

Subhojit Biswas, Diganta Mukherjee () and Indranil SenGupta ()
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Subhojit Biswas: Indian Statistical Institute, Kolkata, India
Diganta Mukherjee: Sampling and Official Statistics Unit, Indian Statistical Institute, Kolkata, India
Indranil SenGupta: Department of Mathematics, North Dakota State University, Fargo, North Dakota, USA

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 04, 1-36

Abstract: This paper proposes swaps on two important new measures of generalized variance, namely, the maximum eigenvalue and trace of the covariance matrix of the assets involved. We price these generalized variance swaps for Barndorff-Nielsen and Shephard model used in financial markets. We consider multiple assets in the portfolio for theoretical purpose and demonstrate our approach with numerical examples taking three stocks in the portfolio. The results obtained in this paper have important implications for the commodity sector where such swaps would be useful for hedging risk.

Keywords: Barndorff-Nielsen and Shephard model; generalized variance; swaps; trace; maximum eigenvalue (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2424786320500516

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