Variance swap dynamics

K. Detlefsen and Wolfgang Härdle

Quantitative Finance, 2012, vol. 13, issue 5, 675-685

Abstract: We compare several parametric and non-parametric approaches for modelling variance swap curves by conducting an in-sample and an out-of-sample analysis using market prices. The forecasted Heston model gives the best overall performance. Moreover, the static Heston model highlights some problems of stochastic volatility models in option pricing of forward starting products.

Date: 2012
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DOI: 10.1080/14697688.2012.749420

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