[R-SIG-Finance] [R-sig-finance] Volatility Swaps

[Luwingo]

Actually I think Eydeland and Wolyniec cover vol swaps in Energy and Power
Risk Management. Their notation is a little cumbersome, but their methods
work, and that text is practically standard for the EPRM industry.


Val Neyman wrote:
> 
> I think you need a little more than that since an existing volatility swap
> would need the current realized vol since effective date and the implied
> vol until expiry. So something like this: vol(t,t_ef-t_ex) = RV(t-t_ef) +
> IV(t_ex - t). Where t_e is the effective date of the vol swap, t_ex is the
> expiration of the swap, IV is the implied vol, and RV is the realized vol.
> The MV of the vol swap at t (where t>=t_ef) would be
> PV(Notional*(vol(t_ef,t_ef-t_ex) - vol(t,t_ef-t_ex))). On t_ef, the value
> of the swap = 0.
> 
> Any ideas on how to implement this would be appreciated. Thanks.
> 
> 
> Luwingo wrote:
>> 
>> Hi Val- Not at present (to my knowledge), but it's not very hard to write
>> one. Volatility swaps are after all just cashflow swaps, and those aren't
>> hard to value even in a spreadsheet. You will basically need a volatility
>> curve and a risk-free spot curve for discounting; after that, it's all
>> just a PV calculation.
>> 
>> 
>> Val Neyman wrote:
>>> 
>>> Does anyone know if there are any functions to price volatility swaps in
>>> Rmetrics? Thanks.
>>> 
>> 
>> 
> 
> 

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