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Type | Journal Article |
Scope | Discipline-based scholarship |
Title | The term structure of variance swap rates and optimal variance swap investments |
Organization Unit | |
Authors |
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Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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Journal Title | Journal of Financial and Quantitative Analysis |
Publisher | Cambridge University Press |
Geographical Reach | international |
ISSN | 0022-1090 |
Volume | 45 |
Number | 5 |
Page Range | 1279 - 1310 |
Date | 2010 |
Abstract Text | This paper performs specification analysis on the term structure of variance swap rates on the S&P 500 index and studies the optimal investment decision on the variance swaps and the stock index. The analysis identifies two stochastic variance risk factors, which govern the short and long end of the variance swap term structure variation, respectively. The highly negative estimate for the market price of variance risk makes it optimal for an investor to take short positions in a short-term variance swap contract, long positions in a long-term variance swap contract, and short positions in the stock index. |
Related URLs |
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Digital Object Identifier | 10.1017/S0022109010000463 |
Other Identification Number | merlin-id:452 |
PDF File | Download from ZORA |
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Additional Information | Copyright: University of Washington Michael G. Foster School of Business |