Pricing variance swaps under hybrid CEV and stochastic volatility

Jiling Cao, Jeong Hoon Kim, Wenjun Zhang

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


In this paper, we consider the problem of pricing a variance swap whose underlying asset price dynamics is modeled under a hybrid framework of constant elasticity of variance and stochastic volatility (SVCEV). Applying the multi-scale asymptotic analysis approach, we obtain a semi-closed form approximation of the fair continuous variance strike. We conduct numerical experiments by applying this approximation formula to calculate the square root of the fair continuous variance strike with different values of parameters. The market data of S&P 500 options are used to obtain calibrations of the SVCEV model, and then the estimated parameters are further used to compute the values of the square root of fair continuous variance strike. In addition, we also analyze and compare the performance of the CEV model, the SVCEV model and the Heston stochastic volatility model.

Original languageEnglish
Article number113220
JournalJournal of Computational and Applied Mathematics
Publication statusPublished - 2021 Apr

Bibliographical note

Publisher Copyright:
© 2020 Elsevier B.V.

All Science Journal Classification (ASJC) codes

  • Computational Mathematics
  • Applied Mathematics


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