Using no arbitrage principle, we derive a relationship between the drift term of risk-neutral dynamics for instantaneous variance and the term structure of forward variance curve. We show that the forward variance curve can be derived from options market. Based on the variance term structure, we...

VIX futures are exchange-traded contracts on a future volatility index level (VIX) derived from a basket of SPX stock index options. The paper posits a stochastic variance model of VIX time evolution, and develops an expression for VIX futures. Free parameters are estimated from market data over...

In this paper, we study the market of the CBOE Samp;P 500 three-month variance futures that were listed on May 18, 2004. By using a simple mean-reverting stochastic volatility model for the Samp;P 500 index, we present a linear relation between the price of fixed time-to-maturity variance...

Volatility risk has played a major role in several financial debacles (for example, Barings Bank, Long Term Capital Management). This risk could have been managed using options on volatility which were proposed in the past but were never offered for trading mainly due to the lack of a tradable...

Volatility risk has played a major role in several financial debacles (for example,Barings Bank, Long Term Capital Management). This risk could have been managed using options on volatility which were proposed in the past but were never offered for trading mainly due to the lack of a tradable...

Volatility risk has played a major role in several financial debacles (for example, Barings Bank, Long Term Capital Management). This risk could have been managed using options on volatility which were proposed in the past but were never offered for trading mainly due to the lack of a tradable...

Using no arbitrage principle, we derive a relation between the drift term of risk-neutral dynamics for instantaneous variance and the term structure of forward variance. We show that the forward variance curve can be derived from options market. Based on the variance term structure, we derive a...

This study investigates the relative performance of various historical volatility estimators that incorporate daily trading range: M. Parkinson (1980), M. Garman and M. Klass (1980), L. C. G. Rogers and S. E. Satchell (1991), and D. Yang and Q. Zhang (2000). It is found that the range estimators...

This article explores the price of continuously sampled Asian options. For geometric Asian options, we present pricing formulas for both backward‐starting and forward‐starting cases. For arithmetic Asian options, we demonstrate that the governing partial differential equation (PDE) cannot be...

In this article, we look at study the dynamics of forward rates with maturities longer than 14 years. We re‐document the phenomenon of the downward sloping long forward rate term structure using U.S. Treasury STRIPS data over the period 1988 to 2007. By calibrating Diebold F. X. and Li...