A Guide to Volatility and Variance Swaps

摘要: Trading in derivatives has caused investors, and especially market makers, to be concerned with the volatility of asset returns along their direction. Uncertain time-varying imparts risk an otherwise hedged position, is not easy manage ordinary instruments. Volatility swaps are a new class derivative, for which asset9s itself underlying. This article describes how work, derives pricing hedging equations them. Interestingly, natural derivative instrument this family would based on variance, rather than volatility, since variance swap can replicated (pretty well) by static portfolio European calls puts price underlying asset. The authors also show set up hedge when available traded options exhibit smile or skew pattern.