PT  - JOURNAL ARTICLE
AU  - Honglei Zhao
AU  - Rupak Chatterjee
AU  - Thomas Lonon
AU  - Ionuţ Florescu
TI  - Pricing Bermudan Variance Swaptions Using Multinomial Trees
AID  - 10.3905/jod.2019.26.3.022
DP  - 2019 Feb 28
TA  - The Journal of Derivatives
PG  - 22--34
VI  - 26
IP  - 3
4099  - https://pm-research.com/content/26/3/22.short
4100  - https://pm-research.com/content/26/3/22.full
AB  - In a recent study, Zhao et al. (2017) presented a tree methodology to evaluate the expected generalized realized variance in a general stochastic volatility model; it provided an efficient way of calculating the fair value of the strike for variance swaps. In this article, the authors expand the methodology to price nonlinear derivatives written on realized variance. They introduce a new option contract, a Bermudan variance swaption, defined as an option on variance swap with early exercise dates. Within the same framework they also show how to value forward-start variance swaps, VIX futures, and VIX options. Numerical tests show that the methodology is efficient and accurate.TOPICS: Derivatives, statistical methods, options