Option valuation with the simplified component GARCH model
AbstractWe 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.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-09.
Date of creation: 28 May 2011
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Web page: http://www.econ.au.dk/afn/
Stochastic volatility; volatility components; GARCH; option pricing.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-FMK-2011-03-05 (Financial Markets)
- NEP-ORE-2011-03-05 (Operations Research)
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