Discrete time option pricing with flexible volatility estimation
(2000) Finance and Stochastics — Vol. 4, n° 2, p. 189-207 (2000)
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- Authors
- Abstract
- By extending the GARCH option pricing model of Duan (1995) to more flexible volatility estimation it is shown that the prices of out-of-the-money options strongly depend on volatility features such as asymmetry. Results are provided for the properties of the stationary pricing distribution in the case of a threshold GARCH model. For a stock index series with a pronounced leverage effect, simulated threshold GARCH option prices are substantially closer to observed market prices than the Black/Scholes and simulated GARCH prices.
- Affiliations
Humboldt-Universität zu Berlin Institut für Statistik und Ökonometrie
Citations
Hardle, W., & Hafner, C. (2000). Discrete time option pricing with flexible volatility estimation. Finance and Stochastics, 4(2), 189-207. https://doi.org/10.1007/s007800050011 (Original work published 2000)