Valuing Futures and Options on Volatility

Posted: 19 Sep 2001

See all articles by Andreas Grünbichler

Andreas Grünbichler

University of St. Gallen - Swiss Institute of Banking and Finance

Francis A. Longstaff

University of California, Los Angeles (UCLA) - Finance Area

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Abstract

This paper derives simple closed-form expressions for volatility futures and option prices and examines their implications for the characteristics of these securities. We show that the properties of these volatility derivatives are fundamentally different from those of conventional options and futures contracts. This analysis also provides insights into the role that volatility derivatives may play in managing and hedging volatility risk in financial markets.

JEL Classification: G13

Suggested Citation

Grünbichler, Andreas and Longstaff, Francis A., Valuing Futures and Options on Volatility. Available at SSRN: https://ssrn.com/abstract=283872

Andreas Grünbichler (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland
+ 41 71 224 7074 (Phone)
+ 41 71 224 7088 (Fax)

HOME PAGE: http://www.sbf.unisg.ch

Francis A. Longstaff

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-2218 (Phone)
310-206-5455 (Fax)

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