Related Experiment Video
Updated: Oct 29, 2026

An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
Variance and volatility swap valuation with nonlinear liquidity-feedback stochastic volatility and regime switching
1School of Mathematics and Statistics, Zhaotong University, Zhaoyang, Zhaotong, Yunnan, P.R. China.
Abstract:
This paper values discretely sampled variance swaps and absolute-return-based volatility swaps under regime-switching stochastic volatility and stochastic liquidity. Extending an existing stochastic-liquidity model, a quadratic liquidity-stress term shifts the variance-factor mean-reversion target. An exponential-quadratic forward transform yields pricing formulas through coupled Riccati equations and a finite-state Markov backward equation. Explicit finite-horizon sufficient conditions establish martingale and transform admissibility. Recomputed numerical experiments assess simulation agreement, integration accuracy and nested liquidity channels. Under the uncalibrated baseline parameterization, delayed variance feedback contributes more than the direct return-liquidity channel, while their cross-channel interaction is small. These conclusions concern the stated illustrative parameter settings and the specified absolute-return contract, whose payoff differs from the square root of realized variance.
Related Concept Videos
Parameters Affecting Nonlinear Elimination: Zero-Order Input, First-Order Absorption and Two-Compartment Model
When a drug is administered through a constant intravenous infusion and eliminated via nonlinear pharmacokinetics, it follows zero-order input. For example, oral drugs undergo first-order absorption upon administration and are eliminated through nonlinear pharmacokinetics.
In the case of subcutaneously administered drugs,...
Standard Deviation
Variance
Variability: Analysis
The range is a simple measure of variability, indicating the difference between the highest and...
Linear Differential Equations
First Derivative Test: Problem Solving