Technical Proofs: Option Bounds for Short Variance Swaps and the Variance Risk Premium - Adjusting for Skewness

Abstract

This paper provides the detailed technical proofs for all theorems in Jordan and Huang (2013). In that paper, semi-parametric upper bounds are derived for European call options. The first three distributions of the underlying return distribution, including skewness, are specifically accounted for. The bounds are then applied to find upper bounds for (1) Short Variance Swaps and (2) the Variance Risk Premium.

The paper "Option Bounds for Short Variance Swaps and the Variance Risk Premium - Adjusting for Skewness" to which this Technical Proof appies is available at the following URL: http://ssrn.com/abstract=2188172

Keywords: Option, Bound, Variance, Swap, Risk, Premium, Skewness, Skew, Short, Semi-Parametric, Moment, Return, Mean, Volatility, Futures, Derivative

JEL Classification: C4, C14, D4, G10, G12, G13, G14, G22, G32, L1