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Moment swaps 

Author: Wim Schoutens a
Affiliation:   a K.U. Leuven, B-3001 Leuven, Belgium
DOI: 10.1080/14697680500401490
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 5, Issue 6 December 2005 , pages 525 - 530
Formats available: HTML (English) : PDF (English)
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Abstract

In this paper we discuss moment swaps. These derivatives depend on the realized higher moments of the underlying. A special case is the nowadays popular variance swaps. After introducing moment swaps we discuss how to hedge these derivatives. Moreover, we show how the classical hedge of the variance swap in terms of a position in log-contracts and a dynamic trading strategy can be significantly enhanced by using third moment swaps.
Keywords: Moment derivatives; Stochastic volatility models; Hedging
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