منابع مشابه
Option pricing in a Garch model with Tempered Stable innovations
The key problem for option pricing in Garch models is that the risk neutral distribution of the underlying is known in explicit form only one day ahead and not at maturity. This problem was solved in the HestonNandi model (1997), where it is possible to compute the characteristic function of the underlying by a recursive procedure and options can be priced by Inverse Fourier Transform, see Hest...
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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...
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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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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 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...
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ژورنال
عنوان ژورنال: Mathematical and Computer Modelling
سال: 2001
ISSN: 0895-7177
DOI: 10.1016/s0895-7177(01)00127-3