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.
