Working Paper Series Derivatives on Volatility : Some Simple Solutions Based on Observables

@inproceedings{Heston2000WorkingPS,
  title={Working Paper Series Derivatives on Volatility : Some Simple Solutions Based on Observables},
  author={Steven Heston and Saikat Nandi},
  year={2000}
}
Proposals to introduce derivatives whose payouts are explicitly linked to the volatility of an underlying asset have been around for some time. In response to these proposals, a few papers have tried to develop valuation formulae for volatility derivatives—derivatives that essentially help investors hedge the unpredictable volatility risk. This paper contributes to this nascent literature by developing closedform/analytical formulae for prices of options and futures on volatility as well as… CONTINUE READING

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