EconPapers    
Economics at your fingertips  
 

What we can learn from pricing 139,879 Individual Stock Options

Lars Stentoft

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

Abstract: The GARCH framework has been used for option pricing with quite some success. While the initial work assumed conditional Gaussian innovations, recent contributions relax this assumption and allow for more flexible parametric specifications of the underlying distribution. However, until now the empirical applications have been limited to index options or options on only a few stocks and this using only few potential distributions and variance specififications. In this paper we test the GARCH framework on 30 stocks in the Dow Jones Industrial Average using two classical volatility specififications and 7 different underlying distributions. Our results provide clear support for using an asymmetric volatility specifification together with non-Gaussian distribution, particularly of the Normal Inverse Gaussian type, and statistical tests show that this model is most frequently among the set of best performing models.

Keywords: American options; GARCH models; Model Confidence Set; Simulation. (search for similar items in EconPapers)
JEL-codes: C22 C53 G13 (search for similar items in EconPapers)
Pages: 54
Date: 2011-12-21
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/11/rp11_52.pdf (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:aah:create:2011-52

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().

 
Page updated 2024-03-31
Handle: RePEc:aah:create:2011-52