Hedging Variance Options on Continuous Semimartingales

Time

-

Locations

E1 106


Speaker

Roger Lee
University of Chicago
http://www.math.uchicago.edu/~rl/



Description

Variance swaps, which pay the realized variance of [the returns on] an underlying price process, have become a leading vehicle for managing volatility exposure. Variance options -- calls and puts on realized variance -- represent the next step in the development of tools for volatility trading.

Assuming only that the underlier is a positive continuous semimartingale, we model-independently superreplicate variance options and forward-starting variance options, by dynamically trading the underlier, and statically holding European options.

Joint work with Peter Carr.

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