Is the Variance Swap Rate Affine in the Spot Variance? Evidence from S&P500 Data

Maria Elvira Mancino, S. Scotti and G. Toscano

Applied Mathematical Finance, 2020, vol. 27, issue 4, 288-316

Abstract: We empirically investigate the functional link between the variance swap rate and the spot variance. Using S&P500 data over the period 2006–2018, we find overwhelming empirical evidence supporting the affine link implied by exponential affine stochastic volatility models. Tests on yearly subsamples suggest that exponential mean-reverting variance models provide a good fit during periods of extreme volatility, while polynomial modelsare suited for years characterized by more frequent price jumps.

Date: 2020
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Working Paper: Is the variance swap rate affine in the spot variance? Evidence from S&P500 data (2020)
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DOI: 10.1080/1350486X.2020.1847671

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