Variance Swaps in BM&F: Pricing and Viability of Hedge
A variance swap can theoretically be priced with an infinite set of vanilla calls and puts options considering that the realized variance follows a purely diffusive process with continuous monitoring. In this article we willanalyze the possible differences in pricing considering discrete monitoring...
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| Format: | Article |
| Language: | English |
| Published: |
Brazilian Society of Finance
2010-07-01
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| Series: | Revista Brasileira de Finanças |
| Subjects: | |
| Online Access: | http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/1562 |
| _version_ | 1818414375868825600 |
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| author | Richard John Brostowicz Junior Márcio Poletti Laurini |
| author_facet | Richard John Brostowicz Junior Márcio Poletti Laurini |
| author_sort | Richard John Brostowicz Junior |
| collection | DOAJ |
| description | A variance swap can theoretically be priced with an infinite set of vanilla calls and puts options considering that the realized variance follows a purely diffusive process with continuous monitoring. In this article we willanalyze the possible differences in pricing considering discrete monitoring of realized variance. It will analyze the pricing of variance swaps with payoff in dollars, since there is a OTC market that works this way and thatpotentially serve as a hedge for the variance swaps traded in BM&F. Additionally, will be tested the feasibility of hedge of variance swaps when there is liquidity in just a few exercise prices, as is the case of FX optionstraded in BM&F. Thus be assembled portfolios containing variance swaps and their replicating portfolios using the available exercise prices as proposed in (DEMETERFI et al., 1999). With these portfolios, the effectiveness of the hedge was not robust in mostly of tests conducted in this work. |
| first_indexed | 2024-12-14T11:18:06Z |
| format | Article |
| id | doaj.art-51bf3bed334d4576abc309b2f1820718 |
| institution | Directory Open Access Journal |
| issn | 1679-0731 1984-5146 |
| language | English |
| last_indexed | 2024-12-14T11:18:06Z |
| publishDate | 2010-07-01 |
| publisher | Brazilian Society of Finance |
| record_format | Article |
| series | Revista Brasileira de Finanças |
| spelling | doaj.art-51bf3bed334d4576abc309b2f18207182022-12-21T23:03:54ZengBrazilian Society of FinanceRevista Brasileira de Finanças1679-07311984-51462010-07-0182197228Variance Swaps in BM&F: Pricing and Viability of HedgeRichard John Brostowicz JuniorMárcio Poletti LauriniA variance swap can theoretically be priced with an infinite set of vanilla calls and puts options considering that the realized variance follows a purely diffusive process with continuous monitoring. In this article we willanalyze the possible differences in pricing considering discrete monitoring of realized variance. It will analyze the pricing of variance swaps with payoff in dollars, since there is a OTC market that works this way and thatpotentially serve as a hedge for the variance swaps traded in BM&F. Additionally, will be tested the feasibility of hedge of variance swaps when there is liquidity in just a few exercise prices, as is the case of FX optionstraded in BM&F. Thus be assembled portfolios containing variance swaps and their replicating portfolios using the available exercise prices as proposed in (DEMETERFI et al., 1999). With these portfolios, the effectiveness of the hedge was not robust in mostly of tests conducted in this work.http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/1562Variance SwapsRealized VarianceHedge |
| spellingShingle | Richard John Brostowicz Junior Márcio Poletti Laurini Variance Swaps in BM&F: Pricing and Viability of Hedge Revista Brasileira de Finanças Variance Swaps Realized Variance Hedge |
| title | Variance Swaps in BM&F: Pricing and Viability of Hedge |
| title_full | Variance Swaps in BM&F: Pricing and Viability of Hedge |
| title_fullStr | Variance Swaps in BM&F: Pricing and Viability of Hedge |
| title_full_unstemmed | Variance Swaps in BM&F: Pricing and Viability of Hedge |
| title_short | Variance Swaps in BM&F: Pricing and Viability of Hedge |
| title_sort | variance swaps in bm f pricing and viability of hedge |
| topic | Variance Swaps Realized Variance Hedge |
| url | http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/1562 |
| work_keys_str_mv | AT richardjohnbrostowiczjunior varianceswapsinbmfpricingandviabilityofhedge AT marciopolettilaurini varianceswapsinbmfpricingandviabilityofhedge |