Overview

Pricing Models of Volatility Products and Exotic Variance Derivatives summarizes most of the recent research results in pricing models of derivatives on discrete realized variance and VIX. The book begins with the presentation of volatility trading and uses of variance derivatives. It then moves on to discuss the robust replication strategy of variance swaps using portfolio of options, which is one of the major milestones in pricing theory of variance derivatives. The replication procedure provides the theoretical foundation of the construction of VIX. This book provides sound arguments for formulating the pricing models of variance derivatives and establishes formal proofs of various technical results. Illustrative numerical examples are included to show accuracy and effectiveness of analytic and approximation methods. Features Useful for practitioners and quants in the financial industry who need to make choices between various pricing models of variance derivatives Fabulous resource for researchers interested in pricing and hedging issues of variance derivatives and VIX products Can be used as a university textbook in a topic course on pricing variance derivatives

Full Product Details

Author:   Yue Kuen Kwok ,  Wendong Zheng
Publisher:   Taylor & Francis Ltd
Imprint:   Chapman & Hall/CRC
Weight:   0.526kg
ISBN:  

9781032199023

ISBN 10:   1032199024
Pages:   268
Publication Date:   14 May 2022
Audience:   College/higher education ,  General/trade ,  Tertiary & Higher Education ,  General
Format:   Hardback
Publisher's Status:   Active
Availability:   In Print  
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Table of Contents

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 Monitoring. Appendix. 2. Lévy Processes and Stochastic Volatility Models. 2.1. Compound Poisson process. 2.2. Jump-diffusion Models. 2.3. Lévy Processes. 2.4. Time-changed Lévy Processes. 2.5. Stochastic Volatility Models with Jumps. 2.6. Affine Jump-diffusion Stochastic Volatility Models. 2.7. 3/2 Stochastic Volatility Model. Appendix. 3. VIX Derivatives Under Consistent Models and direct Models. 3.1. VIX, Variance Swap Rate and VIX Derivatives. 3.2. Pricing VIX Derivatives Under Consistent Models. 3.3. Direct Modeling of VIX. Appendix. 4. Swap products on discrete Variance and Volatility. 4.1. Direct Expectation of Square of Log Return. 4.2. Nested Expectation via Partial Integro-differential Equation. 4.3. Moment Generating Function Methods. 4.4. Variance Swaps Under Time-changed Lévy Processes. Appendix. 5. Options on discrete realized Variance. 5.1. Adjustment for Discretization Effect via Lognormal Approximation. 5.2. Normal Approximation to Conditional Distribution of Discrete Realized Variance. 5.3. Partially Exact and Bounded Approximation for Options on Discrete Realized Variance. 5.4. Small Time Asymptotic Approximation. 6 Timer options. 6.1. Model Formulation. 6.2. Pricing Perpetual Timer Options. 6.3. Finite Maturity Discrete Timer Options. Appendix. Bibliography. Index.

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Author Information

Yue Kuen Kwok is a professor in the Department of Mathematics and Financial Technology Thrust, the Hong Kong University of Science and Technology. Professor Kwok’s research interests concentrate on pricing and risk management of financial derivatives and structured insurance products. He has published more than 80 research articles in major research journals in quantitative finance and actuarial sciences. In addition, he is the author of two books on quantitative finance: Mathematical Models of Financial Derivatives and Saddlepoint Approximation Methods in Financial Engineering. He has provided consulting services to financial institutions on various aspects of trading structured products and credit risk management. Professor Kwok has served on the editorial boards of Journal of Economic and Dynamics Control, Asian-Pacific Financial Markets and International Journal of Financial Engineering. He earned his PhD in applied mathematics from Brown University in 1985. Wendong Zheng joined Credit Suisse in Hong Kong in 2018. He is currently a vice president in the Quantitative Strategies Group, covering equity and hybrid derivatives modeling and trading. Before joining Credit Suisse, he held positions at Bank of China International and Barclays Investment Bank. He has performed both academic and industrial works on pricing and trading volatility derivatives. Also, he has co-authored the book Saddlepoint Approximation Methods in Financial Engineering. Dr. Zheng holds a PhD in mathematics from the Hong Kong University of Science and Technology.

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