Abstract
It is well-known that in normal stochastic volatility models with zero correlation the fresh volatility swap price is exactly equal to the at-the-money implied volatility. To replicate a volatility swap, however, the price of a volatility swap at inception is insufficient. Its price throughout its life must be calculated. This short note proves that the exact price and replicating portfolio for seasoned volatility swaps when correlation is zero is a strip of vanilla options with simple Gaussian weights. For non-zero correlation it is shown that the error is of order correlation-squared.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
