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J. Risk Financial Manag. 2018, 11(1), 11; https://doi.org/10.3390/jrfm11010011

Variance Swap Replication: Discrete or Continuous?

1
Numerical Analysis, TU Delft, 2628 Delft, The Netherlands
2
Financial Engineering, Calypso Technology, 75002 Paris, France
Received: 14 December 2017 / Revised: 1 February 2018 / Accepted: 5 February 2018 / Published: 12 February 2018
(This article belongs to the Special Issue Advances on Volatility Modeling and Forecasting)
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Abstract

The popular replication formula to price variance swaps assumes continuity of traded option strikes. In practice, however, there is only a discrete set of option strikes traded on the market. We present here different discrete replication strategies and explain why the continuous replication price is more relevant. View Full-Text
Keywords: variance swap; volatility; derivatives; quantitative finance variance swap; volatility; derivatives; quantitative finance
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Le Floc’h, F. Variance Swap Replication: Discrete or Continuous? J. Risk Financial Manag. 2018, 11, 11.

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