Browsing by Author "Kriel, Hiltje"

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    Volatility derivatives in the Heston framework
    (2014) Kriel, Hiltje; Ouwehand, Peter
    A volatility derivative is a financial contract where the payoff depends on the realized variance of a specified asset's returns. As volatility is in reality a stochastic variable, not deterministic as assumed in the Black-Scholes model, market participants may surely find volatility derivatives to be useful for hedging and speculation purposes. This study explores the construction and calibration of the Heston stochastic volatility model and the pricing of some volatility derivatives within this framework.