Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process

Wenli Zhu; Xinfeng Ruan

doi:10.1007/s10614-017-9753-x

Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process

Wenli Zhu, Xinfeng Ruan^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

This paper designs and prices the swaps on discrete realized higher moments under the Lévy process in order to hedge the higher-moment risks, e.g., skewness and kurtosis risks. A comparison with Monte-Carlo simulations provides a verification of the correctness of our pricing formula. This paper is a further extension of Zhu and Lian’s (Math Finance 21:233–256, 2011; Appl Math Comput 219:1654–1669, 2012), which are under the Heston model and only price the variance swaps.

Original language	English
Pages (from-to)	507-532
Number of pages	26
Journal	Computational Economics
Volume	53
Issue number	2
DOIs	https://doi.org/10.1007/s10614-017-9753-x
Publication status	Published - 15 Feb 2019
Externally published	Yes

Keywords

Kurtosis swaps
Lévy process
Skewness swaps
Stochastic volatility

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title = "Pricing Swaps on Discrete Realized Higher Moments Under the L{\'e}vy Process",

abstract = "This paper designs and prices the swaps on discrete realized higher moments under the L{\'e}vy process in order to hedge the higher-moment risks, e.g., skewness and kurtosis risks. A comparison with Monte-Carlo simulations provides a verification of the correctness of our pricing formula. This paper is a further extension of Zhu and Lian{\textquoteright}s (Math Finance 21:233–256, 2011; Appl Math Comput 219:1654–1669, 2012), which are under the Heston model and only price the variance swaps.",

keywords = "Kurtosis swaps, L{\'e}vy process, Skewness swaps, Stochastic volatility",

author = "Wenli Zhu and Xinfeng Ruan",

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AB - This paper designs and prices the swaps on discrete realized higher moments under the Lévy process in order to hedge the higher-moment risks, e.g., skewness and kurtosis risks. A comparison with Monte-Carlo simulations provides a verification of the correctness of our pricing formula. This paper is a further extension of Zhu and Lian’s (Math Finance 21:233–256, 2011; Appl Math Comput 219:1654–1669, 2012), which are under the Heston model and only price the variance swaps.

KW - Kurtosis swaps

KW - Lévy process

KW - Skewness swaps

KW - Stochastic volatility

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JF - Computational Economics

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ER -

Pricing Swaps on Discrete Realized Higher Moments Under the Lévy Process

Abstract

Keywords

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