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Option valuation with the simplified component GARCH model

Matt Dziubinski

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We introduce the Simplified Component GARCH (SC-GARCH) option pricing model, show and discuss sufficient conditions for non-negativity of the conditional variance, apply it to low-frequency and high-frequency financial data, and consider the option valuation, comparing the model performance with similar models from the literature. Two volatility components in our model allow us to model time structure of volatility.

Keywords: Stochastic volatility; volatility components; GARCH; option pricing. (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Pages: 18
Date: 2011-05-28
New Economics Papers: this item is included in nep-fmk and nep-ore
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