Discrete variance swap in a rough volatility economy | Zendy

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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.

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