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This paper considers the case of pricing discretely-sampled variance swaps under the class of equity-interest rate hybridization. Our modeling framework consists of the equity which follows the dynamics of the Heston stochastic volatility model, and the stochastic interest rate is driven by the Cox-Ingersoll-Ross (CIR) process with full correlation structure imposed among the state variables. This full correlation structure possesses the limitation to have fully analytical pricing formula for hybrid models of variance swaps, due to the non-affinity property embedded in the model itself. We address this issue by obtaining an efficient semi-closed form pricing formula of variance swaps for an approximation of the hybrid model via the derivation of characteristic functions. Subsequently, we implement numerical experiments to evaluate the accuracy of our pricing formula. Our findings confirm that the impact of the correlation between the underlying and the interest rate is significant for pricing discretely-sampled variance swaps.
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참고문헌 (21)
참고문헌 신청
C. Bernard / 2014 / Prices and asymptotics for discrete variance swaps / Appl. Math. Finance 21(2):140~173
R. N. Bracewell / 1986 / The Fourier Transform and Its Applications, third edition, McGraw-Hill Series in Electrical Engineering. Circuits and Systems / McGraw-Hill Book Co
D. Brigo / 2006 / Interest Rate Models|Theory and Practice / Springer Finance
J. Cao / 2016 / Pricing variance swaps under stochastic volatility and stochastic interest rate / Appl. Math. Comput. 277:72~81
P. Carr / 1998 / Volatility: New Estimation Techniques for Pricing Derivatives / Risk Publications :417~427
R. N. Bracewell / 1986 / The Fourier Transform and Its Applications, third edition, McGraw-Hill Series in Electrical Engineering. Circuits and Systems / McGraw-Hill Book Co
D. Brigo / 2006 / Interest Rate Models|Theory and Practice / Springer Finance
J. Cao / 2016 / Pricing variance swaps under stochastic volatility and stochastic interest rate / Appl. Math. Comput. 277:72~81
P. Carr / 1998 / Volatility: New Estimation Techniques for Pricing Derivatives / Risk Publications :417~427
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