Abstract
We find robust model-free hedges and price bounds for options on the realized variance of [the returns on] an underlying price process. Assuming only that the underlying process is a positive continuous semimartingale, we superreplicate and subreplicate variance options and forward-starting variance options, by dynamically trading the underlying asset and statically holding European options. We thereby derive upper and lower bounds on values of variance options, in terms of Europeans.
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Carr, P., Lee, R. Hedging variance options on continuous semimartingales. Finance Stoch 14, 179–207 (2010). https://doi.org/10.1007/s00780-009-0110-3
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DOI: https://doi.org/10.1007/s00780-009-0110-3