Abstract
In this chapter, we apply the CTM to price variance and volatility swaps for financial markets with underlying assets and variance that follow the classical Heston (Review of Financial Studies 6, 327–343, 1993) model. We also find covariance and correlation swaps for the model. As an application, we provide a numerical example using S&P60 Canada Index to price swap on the volatility (see Swishchuk (2004)).
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Appendix: Figures
Appendix: Figures
S&P60 Canada Index volatility swap
Convexity adjustment
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Swishchuk, A. (2016). CTM and Variance, Volatility, and Covariance and Correlation Swaps for the Classical Heston Model. In: Change of Time Methods in Quantitative Finance. SpringerBriefs in Mathematics. Springer, Cham. https://doi.org/10.1007/978-3-319-32408-1_5
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DOI: https://doi.org/10.1007/978-3-319-32408-1_5
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