Option Pricing under Sign RCA-GARCH Models

Joanna Górka

Dynamic Econometric Models, 2014, vol. 14, 145-160

Abstract: After Black and Scholes’s groundbreaking work, the literature concerning pricing options has become a very important area of research. Numerous option valuation methods have been developed. This paper shows how one can compute option prices using Sign RCA-GARCH models for the dynamics of the volatility. Option pricing obtained from Sign RCA-GARCH models, the Black and Scholes’s valuation and other selected GARCH option pricing models are compared with the market prices. This approach was illustrated by the valuation of the European call options on the WIG20 index. The empirical results indicated that RCA-GARCH and Sign RCA-GARCH models can be successfully used for pricing options. However none of the models can be indicated as the best one for the option valuations for every period and every time to maturity of the options.

Keywords: Sign RCA-GARCH models; option pricing; GARCH models (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:cpn:umkdem:v:14:y:2014:p:145-160

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