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frolloos


Total Posts: 72
Joined: Dec 2007
 
Posted: 2018-05-12 04:24
A working paper on model-free pricing of forward starting volatility swap:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3177299

Comments welcome of course.

alexandergir


Total Posts: 27
Joined: Dec 2007
 
Posted: 2018-06-07 13:11
We knew that fair vol swap is cost of gamma, and Rolloos & Arslan derived this in a few ways independently a couple years ago. Great to see this generalized to forward start! Thank you Frido.

frolloos


Total Posts: 72
Joined: Dec 2007
 
Posted: 2018-06-07 14:03
Me thinks there could be a small error in the paper actually - so advise to not use it for now :) Will let forum know when/if corrected.

EDIT:
Paper has been corrected and available for download again at given SSRN link. Conclusion hasn't changed, just the derivation of it. But contact me if any questions/comments.

Strange


Total Posts: 1578
Joined: Jun 2004
 
Posted: 2018-12-04 00:29
@frolloos

I am trying to play with the spot-starting version to imply var and vol swap strikes and getting results that make no sense. Do you mind pasting a numerical example?

“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”

frolloos


Total Posts: 72
Joined: Dec 2007
 
Posted: 2018-12-04 01:30
Which of my scribbles are you referring to? The "Taylor made" paper only tells you to approximate the volstrike from the d2=0 strike, not the varswap strike. The "It takes three" stuff approximates both the volstrike and varswap strike from 3 pillar options. Are you referring to the latter?

Strange


Total Posts: 1578
Joined: Jun 2004
 
Posted: 2018-12-04 05:01
It's the Takes Three paper, yes. I literally took 3 options from the Jan SPX expiration and tried to reproduce the calculation -ni.e. i take sensible vega/vanna/volga, but the matrix makes no sense.

“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”

frolloos


Total Posts: 72
Joined: Dec 2007
 
Posted: 2018-12-04 06:03
I sent you the simple workbook I used. Have a look and let me / phorum know if still getting nonsensical results.
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