Option Pricing in a GARCH Framework
نویسندگان
چکیده
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 Regressive Conditional Heteroskedasticity (GARCH) model provides a framework for valuing options using time-varying volatilities. In this paper, we explore the pricing of European styled call options using an analytical approximation of the GARCH option pricing model that is developed in existing literatures. Keyword – option pricing, financial option, volatility, GARCH. African Journal of Computing & ICT Reference Format: D. Allenotor, B. Ola & R.K. Thulasiram (2013). Option Pricing in a GARCH Framework Afr J. of Comp & ICTs. Vol 6, No. 2. pp 91-104
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