Volatility Markets

This book presents a comprehensive overview§of the subject of §"Consistent Variance Curve Models", a concept for §variance swap markets which is very closely related §to that§of consistent Heath-Jarrow-Merton models for §interest §rate markets. As the title suggests, the book §provides both §a sound theoretical background on such models as §well as guidance on how to§implement them. In the course of the discussion, we §address questions of existence, market completeness §and integrability as well as efficient simulation §and evaluation techniques.§Moroever, the book also has an additional chapter §on "fitted" variance curve models, most §notably "Fitted Heston", §which has proven to be a very valuable tool for§risk-managing positions of options on variance. §Comparison with other models and implementation §considerations are provided.§This book is a revised version of my PhD §thesis "Volatility Markets: Consistent modeling,§hedging and practical implementation", which has §been written parallel to my work in Deutsche Bank''s §Quantitative Products Analytics team in London.