Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process

Wenli Zhu and Xinfeng Ruan ()
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Wenli Zhu: Southwestern University of Finance and Economics
Xinfeng Ruan: Southwestern University of Finance and Economics

Computational Economics, 2019, vol. 53, issue 2, No 2, 507-532

Abstract: Abstract This paper designs and prices the swaps on discrete realized higher moments under the Lévy process in order to hedge the higher-moment risks, e.g., skewness and kurtosis risks. A comparison with Monte-Carlo simulations provides a verification of the correctness of our pricing formula. This paper is a further extension of Zhu and Lian’s (Math Finance 21:233–256, 2011; Appl Math Comput 219:1654–1669, 2012), which are under the Heston model and only price the variance swaps.

Keywords: Lévy process; Stochastic volatility; Skewness swaps; Kurtosis swaps (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10614-017-9753-x

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