Forward starting volatility swap price

frolloos · Post by **frolloos** » Sat May 12, 2018 4:24 am

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 · Post by **alexandergir** » Thu Jun 07, 2018 1:11 pm

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 · Post by **frolloos** » Thu Jun 07, 2018 2:03 pm

Me thinks there could be a small error in the paper actually - so advise to not use it for now ${L_SMILIES_SMILE}$ 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 · Post by **Strange** » Tue Dec 04, 2018 12:29 am

@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?

frolloos · Post by **frolloos** » Tue Dec 04, 2018 1:30 am

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 · Post by **Strange** » Tue Dec 04, 2018 5:01 am

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.

frolloos · Post by **frolloos** » Tue Dec 04, 2018 6:03 am

I sent you the simple workbook I used. Have a look and let me / phorum know if still getting nonsensical results.