IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v73y2024ics1062940824001153.html
   My bibliography  Save this article

Valuations of generalized variance swaps under the jump–diffusion model with stochastic liquidity risk

Author

Listed:
  • Wang, Ke
  • Guo, Xun-xiang
  • Zhang, Hong-yu

Abstract

This paper focuses on the pricing problem of generalized variance swaps with jump risk in the underlying asset price under a stochastic liquidity model. We obtain a pricing formula of generalized variance swap in a jump–diffusion model with stochastic liquidity risk by the joint moment generating function (MGF) generated by solving the partial integral differential equation (PIDE). Using asymptotic analysis, we also demonstrate that as the sampling interval approaches zero, the pricing formula of discretely sampled generalized variance swap tends to be that of continuously sampled generalized variance swap. Finally, to verify the feasibility of the pricing formula of the generalized variance swap presented in this paper, we conduct some numerical experiments, including a comparison with the results of Monte Carlo (MC) simulation, the impact of various model parameters on the delivery prices of generalized variance swaps, and empirical research using actual market data.

Suggested Citation

  • Wang, Ke & Guo, Xun-xiang & Zhang, Hong-yu, 2024. "Valuations of generalized variance swaps under the jump–diffusion model with stochastic liquidity risk," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001153
    DOI: 10.1016/j.najef.2024.102190
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940824001153
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2024.102190?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Generalized variance swaps; Stochastic liquidity risk; Jump–diffusion process; Moment generating function;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001153. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.