Quadratic Variance Swap Models
By Damir Filipovi'c, Elise Gourier, Loriano Mancini. 2016
88 citations recorded by the source corpus.
We introduce a novel class of term structure models for variance swaps. The multivariate state process is characterized by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed form, greatly facilitating empirical analysis. Various goodness-of-fit tests show that quadratic models fit variance swaps on the S&P 500 remarkably well, and outperform affine models. We solve a dynamic optimal portfolio problem in variance swaps, index option, stock index and bond. An empirical analysis uncovers robust features of the optimal investment strategy.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/61a6042b2c4ae7acb443ef78a39963f435ce00c1
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In Finance
- Dante Amengual
- D. Xiu
- Yacine Aït-Sahalia
- Markus Bibinger
- Markus Pelger
- Jianqing Fan
- Yingying Li
- Jia Li
Citations in the corpus
- Resolution of Policy Uncertainty and Sudden Declines in Volatility (2017, background): “This provides strong evidence in favor of log-type volatility models against the affine volatility models or the quadratic ones advocated by Filipovic et al. (2015). The persistence of volatility and its zero-lower bound together impose a substantial barrier for fitting square-root models.”