Simple Variance Swaps / Ian Martin.

Format:

Book

Author/Creator:

Martin, Ian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16884.

NBER working paper series no. w16884

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

The large asset price jumps that took place during 2008 and 2009 disrupted volatility derivatives markets and caused the single-name variance swap market to dry up completely. This paper defines and analyzes a simple variance swap, a relative of the variance swap that in several respects has more desirable properties. First, simple variance swaps are robust: they can be easily priced and hedged even if prices can jump. Second, simple variance swaps supply a more accurate measure of market-implied variance than do variance swaps or the VIX index. Third, simple variance swaps provide a better way to measure and to trade correlation. The paper also explains how to interpret VIX in the presence of jumps.

Notes:

Print version record

March 2011.