Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance...

Procedures for constructing the characteristic functions of risk neutral densities, from option prices at a fixed maturity, are developed. The logarithm of these characteristic functions are shown to synthesize the Fourier transform of formal Lévy tails. The formal Lévy tails are actual Lévy...