DocumentCode :
685170
Title :
Convexity adjustment for volatility swaps
Author :
Skalli, Abdelhalim ; Youssfi, Chrif
Author_Institution :
Ecole Moahammadia d´Ing., Univ. Mohammed V Rabat, Rabat, Morocco
fYear :
2013
fDate :
28-30 Oct. 2013
Firstpage :
1
Lastpage :
5
Abstract :
In this paper we focus on the convexity adjustment between variance and volatility swaps. It is the difference between the prices that make the two swaps fair. Our aim is to link this adjustment to the implied volatility surface. From practitioners point view this allows to have a first assessment of the volatility swap price without diving into complicated model details. To this aim we look at the SABR model and we use a small time analysis in order to derive such relationship. This technique has been used by various authors to derive extremely accurate approximation of the implied volatility arising from stochastic volatility models.
Keywords :
pricing; stochastic processes; stock markets; SABR model; convexity adjustment; implied volatility surface; stochastic volatility models; time analysis; variance swaps; volatility swap price assessment; Analytical models; Approximation methods; Contracts; Correlation; Cost accounting; Portfolios; Reactive power; Implied Volatility; Risk Neutral Probability; SABR Volatility Swap; Variance Swaps;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Industrial Engineering and Systems Management (IESM), Proceedings of 2013 International Conference on
Conference_Location :
Rabat
Type :
conf
Filename :
6761412
Link To Document :
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