Option pricing under GARCH models with generalized hyperbolic innovations (I): methodology

Christophe Chorro (), Dominique Guegan () and Florian Ielpo
Additional contact information
Christophe Chorro: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr
Dominique Guegan: Centre d'Economie de la Sorbonne - Paris School of Economics, https://cv.archives-ouvertes.fr/dominique-guegan

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: In this paper, we present an alternative to the Black Scholes model for a discrete time economy using GARCH-type models for the underlying asset returns with Generalized Hyperbolic (GH) innovations that are potentially skewed and leptokurtic. Assuming that the stochastic discount factor is an exponential affine function of the states variables, we show that this class of distributions is stable under the Risk neutral change of probability

Keywords: GARCH; Generalized Hyperbolic Distribution; pricing; risk neutral distribution (search for similar items in EconPapers)
JEL-codes: C02 C32 G13 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2008-05
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (6)

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ftp://mse.univ-paris1.fr/pub/mse/CES2008/B08037.pdf (application/pdf)

Related works:
Working Paper: Option Pricing under GARCH models with Generalized Hyperbolic innovations (I): Methodology (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:b08037

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