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    Pricing options on realized variance

    Geman, Helyette (2005) Pricing options on realized variance. Finance and Stochastics 9 , pp. 453-475. ISSN 0949-2984.

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    Abstract

    Models which hypothesize that returns are pure jump processes with independent increments have been shown to be capable of capturing the observed variation of market prices of vanilla stock options across strike and maturity. In this paper, these models are employed to derive in closed form the prices of derivatives written on future realized quadratic variation. Alternative work on pricing derivatives on quadratic variation has alternatively assumed that the underlying returns process is continuous over time. We compare the model values of derivatives on quadratic variation for the two types of models and find substantial differences.

    Metadata

    Item Type: Article
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Sarah Hall
    Date Deposited: 02 Jun 2020 16:13
    Last Modified: 02 Jun 2020 16:13
    URI: https://eprints.bbk.ac.uk/id/eprint/32114

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