Option Pricing Under GARCH Processes Using PDE Methods

Michèle Breton () and Javier de Frutos ()
Additional contact information
Michèle Breton: GERAD and HEC Montréal, Quebec H3T 2A7, Canada
Javier de Frutos: GERAD and Departamento de Matemática Aplicada, Universidad de Valladolid, Valladolid, Spain

Operations Research, 2010, vol. 58, issue 4-part-2, 1148-1157

Abstract: In this paper, we propose a partial differential equation formulation for the value of an option when the underlying asset price is described by a discrete-time GARCH process. Our numerical approach involves a spectral Fourier-Chebyshev interpolation. Numerical illustrations are provided, and the results are compared with other available valuation methods. Our numerical procedure converges exponentially fast and allows for the efficient computation of option prices, achieving a high level of precision in a few seconds of computing time.

Keywords: asset pricing; algorithms; stochastic (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.1100.0822 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:58:y:2010:i:4-part-2:p:1148-1157

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().