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...

Convexity correction arises when one computes the expected value of an interest rate index under a probability measure other than its own natural martingale measure. As a typical example, the natural martingale measure of the swap rate is the swap measure with annuity as the numeraire. However,...

We consider the saddlepoint approximation methods for pricing derivatives whose payoffs depend on the discrete realized variance of the underlying price process of a risky asset. Most of the earlier pricing models of variance products and volatility derivatives use the quadratic variation...

We propose robust numerical algorithms for pricing discrete variance options and volatility swaps under general time-changed Lèvy processes. Since analytic pricing formulas of these derivatives are not available, some of the earlier pricing methods use the quadratic variation approximation for...