1. Volatility Trading and Variance Derivatives. 1.1. Implied Volatility and Local Volatility. 1.2. Volatility Trading using Options. 1.3. Derivatives on Discrete Realized Variance. 1.4. Replication of Variance Swaps. 1.5. Practical Implementation of Replication: Finite Strikes and Discrete...

Most of the existing pricing models of variance derivative products assume continuous sampling of the realized variance processes, though actual contractual specifications compute the realized variance based on sampling at discrete times. We present a general analytic approach for pricing...