American Option Valuation: Implied Calibration of GARCH Pricing-Models
Michael Weber and
Marcel Prokopczuk ()
Additional contact information
Michael Weber: Haas School of Business, University of California at Berkeley
ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading
This article analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.
Keywords: American Options; GARCH; Implied Calibration; Edgeworth Binomial Tree (search for similar items in EconPapers)
JEL-codes: C22 C51 G13 (search for similar items in EconPapers)
Pages: 38 pages
New Economics Papers: this item is included in nep-cfn
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.icmacentre.ac.uk/files/dp201002.pdf [302 Found]--> https://www.icmacentre.ac.uk/files/dp201002.pdf)
Journal Article: American option valuation: Implied calibration of GARCH pricing models (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2010-02
Access Statistics for this paper
More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().