An Option Pricing Formula for the GARCH Diffusion Model
نویسندگان
چکیده
منابع مشابه
An option pricing formula for the GARCH diffusion model
We derive analytically the first four conditional moments of the integrated variance implied by the GARCH diffusion process. From these moments we obtain an analytical closed-form approximation formula to price European options under the GARCH diffusion model. Using Monte Carlo simulations, we show that this approximation formula is accurate for a large set of reasonable parameters. Finally, we...
متن کاملA Closed-Form GARCH Option Pricing Model
This paper develops a closed-form option pricing formula for a spot asset whose variance follows a GARCH process. The model allows for correlation between returns of the spot asset and variance and also admits multiple lags in the dynamics of the GARCH process. The single-factor (one-lag) version of this model contains Heston’s (1993) stochastic volatility model as a diffusion limit and therefo...
متن کاملApproximating GARCH-Jump Models, Jump-Diffusion Processes, and Option Pricing
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 کاملNon-Gaussian GARCH option pricing models and their diffusion limits
We investigate the weak convergence of a non-Gaussian GARCH model together with an application to the pricing of European style options determined using two different stochastic discount factors: the extended Girsanov principle of Elliott and Madan (1998) and the conditional Esscher transform. Applying these changes of measure to asymmetric GARCH models sampled at increasing frequencies, we obt...
متن کاملA Jump-Diffusion Model for Option Pricing
Brownian motion and normal distribution have been widely used in the Black–Scholes option-pricing framework to model the return of assets. However, two puzzles emerge from many empirical investigations: the leptokurtic feature that the return distribution of assets may have a higher peak and two (asymmetric) heavier tails than those of the normal distribution, and an empirical phenomenon called...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2003
ISSN: 1556-5068
DOI: 10.2139/ssrn.451200