Loading [a11y]/accessibility-menu.js
Convexity adjustment for volatility swaps | IEEE Conference Publication | IEEE Xplore

Convexity adjustment for volatility swaps


Abstract:

In this paper we focus on the convexity adjustment between variance and volatility swaps. It is the difference between the prices that make the two swaps fair. Our aim is...Show More

Abstract:

In this paper we focus on the convexity adjustment between variance and volatility swaps. It is the difference between the prices that make the two swaps fair. Our aim is to link this adjustment to the implied volatility surface. From practitioners point view this allows to have a first assessment of the volatility swap price without diving into complicated model details. To this aim we look at the SABR model and we use a small time analysis in order to derive such relationship. This technique has been used by various authors to derive extremely accurate approximation of the implied volatility arising from stochastic volatility models.
Date of Conference: 28-30 October 2013
Date Added to IEEE Xplore: 13 March 2014
Electronic ISBN:978-2-9600532-4-1
Conference Location: Agdal, Morocco
No metrics found for this document.

I. Introduction(Heading 1)

Volatility is a central theme of financial studies. Ever since Black-Scholes (BS) came up with their framework for pricing and replication, traders focused on volatility as a prime factor for uncertainty. They converted market price information to implied volatility. This was particularly convenient for the purpose of price interpolation and extrapolation to different maturities and strikes. Famously, since the crash of 1987, market players realized that the inversion of the BS formula from observed market prices led to a smile shaped form for the volatility -volatility smile-reflecting that the implied volatility changed with the exercise price.

Usage
Select a Year
2025

View as

Total usage sinceMar 2014:104
00.511.522.53JanFebMarAprMayJunJulAugSepOctNovDec210000000000
Year Total:3
Data is updated monthly. Usage includes PDF downloads and HTML views.
Contact IEEE to Subscribe

References

References is not available for this document.