Simple Variance Swaps

Ian Martin

No 16884, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The large asset price jumps that took place during 2008 and 2009 disrupted volatility derivatives markets and caused the single-name variance swap market to dry up completely. This paper defines and analyzes a simple variance swap, a relative of the variance swap that in several respects has more desirable properties. First, simple variance swaps are robust: they can be easily priced and hedged even if prices can jump. Second, simple variance swaps supply a more accurate measure of market-implied variance than do variance swaps or the VIX index. Third, simple variance swaps provide a better way to measure and to trade correlation. The paper also explains how to interpret VIX in the presence of jumps.

JEL-codes: G01 G12 G13 (search for similar items in EconPapers)
Date: 2011-03
Note: AP
References: Add references at CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
http://www.nber.org/papers/w16884.pdf (application/pdf)

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:nbr:nberwo:16884

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16884

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().