Abstract
We find robust model-free hedges and price bounds for options on the realized variance of [the returns on] an underlying price process. Assuming only that the underlying process is a positive continuous semimartingale, we superreplicate and subreplicate variance options and forward-starting variance options, by dynamically trading the underlying asset and statically holding European options. We thereby derive upper and lower bounds on values of variance options, in terms of Europeans.
Original language | English (US) |
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Pages (from-to) | 179-207 |
Number of pages | 29 |
Journal | Finance and Stochastics |
Volume | 14 |
Issue number | 2 |
DOIs | |
State | Published - Apr 2010 |
Keywords
- Continuous semimartingale
- Price bounds
- Subreplication
- Superreplication
- Variance option
ASJC Scopus subject areas
- Statistics and Probability
- Finance
- Statistics, Probability and Uncertainty