Ekonomická a finančná matematika

Seminar z financnej matematiky 9.7. o 15:00
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Autor:  sevcovic [ Uto Júl 07, 2009 9:47 pm ]
Predmet príspevku:  Seminar z financnej matematiky 9.7. o 15:00

Vazeni kolegovia,
dovolujem si vas pozvat na seminar z financnej matematiky nasho hosta prof. Song-Ping Zhu z Australie.
Seminar sa uskutocni vo stvrtok 9.7.2009 o 15:00 v poslucharni C na FMFI UK.
Pozdravuje vas vsetkych,
Daniel Sevcovic

A Closed-form Exact Solution for Pricing Variance Swaps with Stochastic Volatility
Song-Ping Zhu and Guang-Hua Lian

School of Mathematics and Applied Statistics
University of Wollongong, Australia

Abstract: In this paper, we present a highly efficient approach to price variance swaps with discrete sampling times. We have found a closed-form exact solution for the partial differential equation (PDE) system based on Heston's (1993) two-factor stochastic volatility model embedded in the framework proposed by Little and Pant (2001). In comparison with all the previous approximation models based on the assumption of continuous sampling time, the current research of working out a closed-form exact solution for variance swaps with discrete sampling times at least serves for two major purposes: (i) to verify the degree of validity of using a continuous-sampling-time approximation for variance swaps of relatively short sampling period; (ii) to demonstrate that significant errors can result from still adopting such an assumption for a variance swap with small sampling frequencies or long tenor. Other key features of our new solution approach include: (a) with the newly found analytic solution, all the hedging ratios of a variance swap can also be analytically derived; (b) numerical values can be very efficiently computed from the newly found analytic formula.

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