Pricing under Linear Autoregressive Dynamics , Heteroskedasticity , and Conditional
نویسندگان
چکیده
Daily returns of nancial assets are frequently found to exhibit positive autocor-relation at lag 1. When specifying a linear AR(1) conditional mean, one may ask how this predictability aaects option prices. We investigate the dependence of option prices on autoregressive dynamics under stylized facts of stock returns, i.e., conditional heteroskedasticity, leverage eeect, and conditional leptokurtosis. Our analysis covers both a continuous and discrete time framework. The results suggest that a non-zero autoregression coeecient tends to increase the deviation of option prices from Black & Scholes prices caused by stochastic volatility.
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