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Discrete variance swap in a rough volatility economy
Author(s) -
Xi Yiru,
Wong Hoi Ying
Publication year - 2021
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22242
Subject(s) - variance swap , volatility swap , volatility (finance) , econometrics , swap (finance) , stochastic volatility , economics , forward volatility , implied volatility , valuation (finance) , realized variance , mathematics , financial economics , finance
The discrete variance swap is one of the most popular volatility derivatives traded on the over‐the‐counter market. This paper discusses its valuation in a rough volatility economy and the impact of roughness on the term structure of discrete variance swap prices. A semianalytic solution is obtained through stochastic convolution. Our numerical experiments show that the roughness of volatility has a significant impact on the concavity of the variance swap term structure.