Variance swaps under the threshold Ornstein–Uhlenbeck model

Fangyuan Dong and Hoi Ying Wong

Applied Stochastic Models in Business and Industry, 2017, vol. 33, issue 5, 507-521

Abstract: Variance swap is a typical financial tool for managing volatility risk. In this paper, we evaluate different types of variance swaps under a threshold Ornstein–Uhlenbeck model, which exhibits both mean reversion and regime switching features in the underlying asset price. We derive the analytical solution for the joint moment generating function of log‐asset prices at two distinct time points. This enables us to price various types of variance swaps analytically. Copyright © 2017 John Wiley & Sons, Ltd.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1002/asmb.2252

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:33:y:2017:i:5:p:507-521

Access Statistics for this article

More articles in Applied Stochastic Models in Business and Industry from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().