GARCH Option Pricing Under Skew
AbstractThis article is an empirical study dedicated to the GARCH Option pricing model of Duan (1995) applied to the FTSE 100 European style options for various maturities. We analyze the validity of the model given its ability to price one-day ahead out-of-sample call options and also its ability to capture the empirical dynamic of the volatility skew. First, we get a severe mispricing for deep out-of-the-money and short-term call options. Second, this model reveals a good ability to capture the change of regime in the implied volatility surface.
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Bibliographic InfoArticle provided by IUP Publications in its journal The IUP Journal of Applied Economics.
Volume (Year): IV (2005)
Issue (Month): 6 (November)
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Other versions of this item:
- Sofiane ABOURA, 2004. "GARCH Option Pricing Under Skew," Finance 0405032, EconWPA.
- Aboura, Sofiane, 2005. "GARCH option pricing under skew," Open Access publications from UniversitÃ© Paris-Dauphine urn:hdl:123456789/2138, Université Paris-Dauphine.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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