Simulation of Stochastic Volatility Variance Swap

  • Shican Liu
  • Yanli Zhou
  • Yonghong Wu
  • Xiangyu Ge
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)

Abstract

This paper aims to propose efficient mathematical model of variance swap to study the effect of stochastic volatility in different time-scales on the option pricing. Two types of stochastic volatility, including Ornstein-Uhlenbeck (OU) process and Cox-Ingersoll-Ross (CIR) process are considered. Analytical solution of CIR model is presented. For the OU process, a numerical algorithm based on the finite element approach is established for solution of the model.

Keywords

Variance swaps Time-scale Stochastic volatility Finite element method 

Notes

Acknowledgments

This research work is supported by Humanities and Social Science fund of Chinese Ministry of Education (17YJC630236).

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Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  • Shican Liu
    • 1
    • 2
  • Yanli Zhou
    • 3
  • Yonghong Wu
    • 1
  • Xiangyu Ge
    • 2
  1. 1.Department of Mathematics and Statistics Curtin UniversityBentleyAustralia
  2. 2.School of Statistics and MathematicsZhongnan University of Economics and LawWuhanChina
  3. 3.School of Finance, Zhongnan University of Economics and LawWuhanChina

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