Hedging Variance Options on Continuous Semimartingales
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Date: 11-16-2006
Start Time:
1:00pm
End Time: 2:00pm
Speaker: Roger Lee, University of Chicago
Location: Mudd 303
Abstract
Variance swaps, which pay the realized variance of [the returns on] an underlying price process, have become a leading vehicle for managing volatility exposure. Variance options calls and puts on realized variance—represent the next step in the development of tools for volatility trading. Assuming only that the underlier is a positive continuous semimartingale, we model independently super replicate and subreplicate forward-starting variance options, by dynamically trading the underlier, and statically holding European options.
Joint with Peter Carr.
Bio
Roger Lee is an assistant professor of mathematics at the University of Chicago. Previously he was a Szego assistant professor of mathematics at Stanford University. His research focuses on financial mathematics and engineering.