Listed Volatility and Variance Derivatives: A Python-based Guide

Yves Hilpisch



Leverage Python for expert-level volatility and variance derivative trading

Listed Volatility and Variance Derivatives is a comprehensive treatment of all aspects of these increasingly popular derivatives products, and has the distinction of being both the first to cover European volatility and variance products provided by Eurex and the first to offer Python code for implementing comprehensive quantitative analyses of these financial products. For those who want to get started right away, the book is accompanied by a dedicated Web page and a Github repository that includes all the code from the book for easy replication and use, as well as a hosted version of all the code for immediate execution.

Python is fast making inroads into financial modelling and derivatives analytics, and recent developments allow Python to be as fast as pure C++ or C while consisting generally of only 10% of the code lines associated with the compiled languages. This complete guide offers rare insight into the use of Python to undertake complex quantitative analyses of listed volatility and variance derivatives.

• Learn how to use Python for data and financial analysis, and reproduce stylised facts on volatility and variance markets
• Gain an understanding of the fundamental techniques of modelling volatility and variance and the model-free replication of variance
• Familiarise yourself with micro structure elements of the markets for listed volatility and variance derivatives
• Reproduce all results and graphics with IPython/Jupyter Notebooks and Python codes that accompany the book

Listed Volatility and Variance Derivatives is the complete guide to Python-based quantitative analysis of these Eurex derivatives products.

Table of Contents

Preface xi

PART ONE Introduction to Volatility and Variance

CHAPTER 1 Derivatives, Volatility and Variance 3

CHAPTER 2 Introduction to Python 17

CHAPTER 3 Model-Free Replication of Variance 55

PART TWO Listed Volatility Derivatives

CHAPTER 4 Data Analysis and Strategies 71

CHAPTER 5 VSTOXX Index 95

CHAPTER 6 Valuing Volatility Derivatives 129

CHAPTER 7 Advanced Modeling of the VSTOXX Index 179

CHAPTER 8 Terms of the VSTOXX and its Derivatives 221

PART THREE Listed Variance Derivatives

CHAPTER 9 Realized Variance and Variance Swaps 229

CHAPTER 10 Variance Futures at Eurex 251

CHAPTER 11 Trading and Settlement 269

PART FOUR DX Analytics

CHAPTER 12 DX Analytics – An Overview 283

CHAPTER 13 DX Analytics – Square-Root Diffusion 297

CHAPTER 14 DX Analytics – Square-Root Jump Diffusion 315

Bibliography 345

Index 347

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