Discrete time option pricing with flexible volatility estimation

Wolfgang Härdle and Christian Hafner

No 1997,56, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: By extending the GARCH option pricing model of Duan (1995) to more flexible volatility estimation it is shown that the prices of out-of-the-money options strongly depend on volatility features such as asymmetry. Results are provided for the properties of the stationary pricing distribution in the case of a threshold GARCH model. For a stock index series with a pronounced leverage effect, simulated threshold GARCH option prices are substantially closer to observed market prices than the Black/Scholes and simulated GARCH prices.

Date: 1997
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Related works:
Journal Article: Discrete time option pricing with flexible volatility estimation (2000)
Working Paper: Discrete time option pricing with flexible volatility estimation (2000)
Working Paper: Discrete time option pricing with flexible volatility estimation (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:199756

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