Option pricing under GARCH models with generalized hyperbolic innovations (II): data and results

Christophe Chorro (), Dominique Guegan () and Florian Ielpo
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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 provide a new dynamic asset pricing model for plain vanilla options and we discuss its ability to produce minimum mispricing errors on equity option books. The data set is the daily log returns of the French CAC 40 index, on the period January 2, October 26, 2007. Under the historical measure, we estimate an EGARCH model with Generalized Hyperbolic innovations, using this dataset. We showed in Chorro, Guégan and Ielpo (2008) that when the pricing kernel is an exponential affine function of the state variables, the risk neutral distribution is unique and implies again a Generalized Hyperbolic dynamic, with changed parameters. Thus, using this theoretical result associated to Monte Carlo simulations, we compare our approach to natural competitors in order to test its efficiency. More generally, our empirical investigations analyze the ability of specific parametric innovations to reproduce market prices in the context of the exponential affine specification of the stochastic discount factor

Keywords: Generalized Hyperbolic Distribution; option pricing; incomplete market; CAC 40; GARCH models (search for similar items in EconPapers)
JEL-codes: C22 G13 G22 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2008-07
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:b08047

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