Effect of Variance Swap in Hedging Volatility Risk
Clicks: 248
ID: 111432
2020
Article Quality & Performance Metrics
Overall Quality
Not rated
Combines reader engagement with the AI quality analysis. This
article has not been analysed, so there is no overall score —
reader engagement is measured and shown alongside.
Reader Engagement
Steady Performance
30.0
/100
248 views
42 readers
AI Quality Assessment
Not analyzed
Readership in this journal
SteadyRanked #34 of 89 articles by views in risks
Most read
Least read
Bar heights use a square-root scale.
Mint this article as an NFT
Not yet mintedCreate a permanent, verifiable on-chain record of this article on the Scimatic Network. The NFT is held in your Journament account, and you can withdraw it to your own wallet at any time.
5
SUSD
one-off · no wallet required
Abstract
This paper studies the effect of variance swap in hedging volatility risk under the mean-variance criterion. We consider two mean-variance portfolio selection problems under Heston’s stochastic volatility model. In the first problem, the financial market is complete and contains three primitive assets: a bank account, a stock and a variance swap, where the variance swap can be used to hedge against the volatility risk. In the second problem, only the bank account and the stock can be traded in the market, which is incomplete since the idiosyncratic volatility risk is unhedgeable. Under an exponential integrability assumption, we use a linear-quadratic control approach in conjunction with backward stochastic differential equations to solve the two problems. Efficient portfolio strategies and efficient frontiers are derived in closed-form and represented in terms of the unique solutions to backward stochastic differential equations. Numerical examples are provided to compare the solutions to the two problems. It is found that adding the variance swap in the portfolio can remarkably reduce the portfolio risk.
| Reference Key |
shen2020riskseffect
Use this key to autocite in the manuscript while using
SciMatic Manuscript Manager or Thesis Manager
|
|---|---|
| Authors | Yang Shen;Shen, Yang; |
| Journal | risks |
| Year | 2020 |
| DOI |
10.3390/risks8030070
|
| URL | |
| Keywords |
Citations
No citations found. To add a citation, contact the admin at info@scimatic.org
Comments
No comments yet. Be the first to comment on this article.