GARCH Option Valuation:Theory and Evidence
نویسندگان
چکیده
منابع مشابه
Option 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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Option pricing based on GARCH models is typically obtained under the assumption that the random innovations are standard normal (normal GARCH models). However, these models fail to capture the skewness and the leptokurtosis in financial data. We propose a new method to compute option prices using a non-parametric density estimator for the distribution of the driving noise. We investigate the pr...
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Characterizing asset return dynamics using volatility models is an important part of empirical finance. The existing literature on GARCH models favors some rather complex volatility specifications whose relative performance is usually assessed through their likelihood based on a time-series of asset returns. This paper compares a range of GARCH models along a different dimension, using option p...
متن کاملThe 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...
متن کاملOn Accurate Trinomial GARCH Option Pricing Algorithms
The GARCH model has been successful in describing the volatility dynamics of asset return series. However, tree-based GARCH option pricing algorithms suffer from exponential running time, inaccuracy, or other problems. Lyuu and Wu proved that the trinomial-tree option pricing algorithms of Ritchken and Trevor (1999) and Cakici and Topyan (2000) explode exponentially when the number of partition...
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ژورنال
عنوان ژورنال: The Journal of Derivatives
سال: 2013
ISSN: 1074-1240
DOI: 10.3905/jod.2013.2013.1.032