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dc.contributor.authorPun, Chi Sengen
dc.contributor.authorChung, Shing Fungen
dc.contributor.authorWong, Hoi Yingen
dc.identifier.citationPun, C. S., Chung, S. F., & Wong, H. Y. (2015). Variance swap with mean reversion, multifactor stochastic volatility and jumps. European Journal of Operational Research, 245(2), 571-580.en
dc.description.abstractThis paper examines variance swap pricing using a model that integrates three major features of financial assets, namely the mean reversion in asset price, multi-factor stochastic volatility (SV) and simultaneous jumps in prices and volatility factors. Closed-form solutions are derived for vanilla variance swaps and gamma swaps while the solutions for corridor variance swaps and conditional variance swaps are expressed in a one-dimensional Fourier integral. The numerical tests confirm that the derived solution is accurate and efficient. Furthermore, empirical studies have shown that multi-factor SV models better capture the implied volatility surface from option data. The empirical results of this paper also show that the additional volatility factor contributes significantly to the price of variance swaps. Hence, the results favor multi-factor SV models for pricing variance swaps consistent with the implied volatility surface.en
dc.relation.ispartofseriesEuropean Journal of Operational Researchen
dc.rights© 2015 Elsevier. This is the author created version of a work that has been peer reviewed and accepted for publication by European Journal of Operational Research, Elsevier. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [].en
dc.subjectMean reversionen
dc.subjectVariance swapen
dc.subjectMulti-factor stochastic volatilityen
dc.subjectJump diffusionen
dc.titleVariance Swap with Mean Reversion, Multifactor Stochastic Volatility and Jumpsen
dc.typeJournal Articleen
dc.contributor.schoolSchool of Physical and Mathematical Sciencesen
dc.description.versionAccepted versionen
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