Albanese, Claudio and Osseiran, Adel (2007): Moment Methods for Exotic Volatility Derivatives.

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Abstract
The latest generation of volatility derivatives goes beyond variance and volatility swaps and probes our ability to price realized variance and sojourn times along bridges for the underlying stock price process. In this paper, we give an operator algebraic treatment of this problem based on Dyson expansions and moment methods and discuss applications to exotic volatility derivatives. The methods are quite flexible and allow for a specification of the underlying process which is semiparametric or even nonparametric, including statedependent local volatility, jumps, stochastic volatility and regime switching. We find that volatility derivatives are particularly well suited to be treated with moment methods, whereby one extrapolates the distribution of the relevant path functionals on the basis of a few moments. We consider a number of exotics such as variance knockouts, conditional corridor variance swaps, gamma swaps and variance swaptions and give valuation formulas in detail.
Item Type:  MPRA Paper 

Institution:  Independent Consultant 
Original Title:  Moment Methods for Exotic Volatility Derivatives 
Language:  English 
Keywords:  volatility derivatives; operator methods; moment methods; conditional corridor variance swaps; variance knockout options 
Subjects:  G  Financial Economics > G1  General Financial Markets > G13  Contingent Pricing ; Futures Pricing 
Item ID:  5330 
Depositing User:  Claudio Albanese 
Date Deposited:  16. Oct 2007 
Last Modified:  18. Feb 2013 04:55 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/5330 