Approximating the GJR-GARCH and EGARCH option pricing models analytically

Jin-Chuan Duan, Geneviève Gauthier, Jean-Guy Simonato and Caroline Sasseville

Journal of Computational Finance

Abstract: ABSTRACT In Duan, Gauthier and Simonato (1999), an analytical approximation to price European options in the generalized autoregressive conditional heteroskedastic (GARCH) framework was developed. The formula is, however, restricted to the non-linear asymmetric GARCH model. This paper extends the approximation to two other popular GARCH specifications, GJR-GARCH and EGARCH. We provide the corresponding formulas and study their numerical performance.

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