✦ LIBER ✦

The GARCH-stable option pricing model

✍ Scribed by H.A. Hauksson; S.T. Rachev

Publisher: Elsevier Science
Year: 2001
Tongue: English
Weight: 963 KB
Volume: 34
Category: Article
ISSN: 0895-7177
DOI: 10.1016/s0895-7177(01)00127-3

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✦ Synopsis

An option pricing model is developed based on a generalized autoregressive conditional heteroskedastic (GARCH) asset return process with stable Paretian innovations.

Our approach is based on t,he locally risk-neutral valuation relationship. Methods for maximum likelihood estimation of GARCH-stable processes are presented as well as empirical results for the DAX index. Finally, the results of Monte Carlo simulations evaluating prices of European call options, implied volatility, delta hedging parameters, and value at risk are presented.

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