A PROPOSAL for MULTI-ASSET GENERALIZED VARIANCE SWAPS

Authors

Subhojit Biswas, Indian Statistical Institute, Kolkata
Diganta Mukherjee, Indian Statistical Institute, Kolkata

Article Type

Research Article

Publication Title

Annals of Financial Economics

Abstract

This paper proposes swaps on two important new measures of generalized variance, namely the maximum eigenvalue and trace of the covariance matrix of the assets involved. We price these generalized variance swaps for financial markets with Markov-modulated volatilities. We consider multiple assets in the portfolio for theoretical purpose and demonstrate our approach with numerical examples taking three stocks in the portfolio. The results obtained in this paper have important implications for the commodity sector where such swaps would be useful for hedging risk.

DOI

10.1142/S2010495219500192

Publication Date

12-1-2019

Recommended Citation

Biswas, Subhojit and Mukherjee, Diganta, "A PROPOSAL for MULTI-ASSET GENERALIZED VARIANCE SWAPS" (2019). Journal Articles. 569.
https://digitalcommons.isical.ac.in/journal-articles/569