Improving the option pricing performance of GARCH models in inefficient market
نویسندگان
چکیده
منابع مشابه
The Complexity of GARCH Option Pricing Models
When using trees to price options, the standard practice is to increase the number of partitions per day, n, to improve accuracy. But increasing n incurs computational overhead. In fact, raising n makes the popular Ritchken-Trevor tree under non-linear GARCH (NGARCH) grow exponentially when n exceeds a typically small threshold. Worse, when this happens, the tree cannot grow beyond a certain ma...
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In Duan, Gauthier and Simonato (1999), an analytical approximate formula for European options in the GARCH framework was developed. The formula is however restricted to the nonlinear asymmetric GARCH model. This paper extends the same approach to two other important GARCH specifications GJR-GARCH and EGARCH. We provide the corresponding formulas and study their numerical performance. keywords: ...
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Although asset return distributions are known to be conditionally leptokurtic, this fact was rarely addressed in the recent GARCH model literature. For this reason, we introduce the class of smoothly truncated stable distributions (STS distributions) and derive a generalized GARCH option pricing framework based on non-Gaussian innovations. Our empirical results show that (1) the model’s perform...
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This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset prices and volatilities. We extend theory developed by Nelson (1990) and Duan (1997) by considering limiting models for our resulting approximating GARCH-Jump process. Limiting cases of our processes consist of models where both asset price and local volatility follow jump diffus...
متن کاملOption Pricing in a GARCH Framework
There is a compelling need to accurately and efficiently compute option values. Existing literature shows that models based on constant stock volatilities have been widely used in option valuation. However, stock volatilities change constantly in real life situations. The introduction of the Auto Regressive Conditional Heteroskedasticity (ARCH) model and subsequently, the Generalized Auto Regre...
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ژورنال
عنوان ژورنال: Investment Management and Financial Innovations
سال: 2020
ISSN: 1810-4967,1812-9358
DOI: 10.21511/imfi.17(2).2020.02