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research article

Quadratic variance swap models

Filipovic, Damir  
•
Gourier, Elise
•
Mancini, Loriano  
2016
Journal Of Financial Economics

We introduce a novel class of term structure models for variance swaps. The multivariate state process is characterized by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed form, greatly facilitating empirical analysis. Various goodness-of-fit tests show that quadratic models fit variance swaps on the S&P 500 remarkably well, and outperform affine models. We solve a dynamic optimal portfolio problem in variance swaps, index option, stock index and bond. An empirical analysis uncovers robust features of the optimal investment strategy. (C) 2015 The Authors. Published by Elsevier B.V.

  • Details
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Type
research article
DOI
10.1016/j.jfineco.2015.08.015
Web of Science ID

WOS:000367114400003

Author(s)
Filipovic, Damir  
Gourier, Elise
Mancini, Loriano  
Date Issued

2016

Publisher

Elsevier

Published in
Journal Of Financial Economics
Volume

119

Issue

1

Start page

44

End page

68

Subjects

Stochastic volatility

•

Variance swap

•

Quadratic term structure

•

Quadratic jump-diffusion

•

Dynamic optimal portfolio

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
SFI-LM  
CSF  
Available on Infoscience
February 16, 2016
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/123831
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