GARCH option pricing models with Meixner innovations

Matthias Fengler and Alexander Melnikov ()
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Alexander Melnikov: University of St. Gallen

Review of Derivatives Research, 2018, vol. 21, issue 3, No 2, 277-305

Abstract: Abstract The paper presents GARCH option pricing models with Meixner-distributed innovations. The risk-neutral dynamics are derived by means of the conditional Esscher transform. Assessing the option pricing performance both in-sample and out-of-sample, we find that the models compare favorably against the benchmark models. Simulations suggest that the driver of these results is the impact of conditional skewness and conditional excess kurtosis on option prices.

Keywords: GARCH models; Meixner distribution; Esscher transform; Option pricing (search for similar items in EconPapers)
JEL-codes: C22 G13 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11147-017-9141-7

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