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Option valuation with the simplified component GARCH model

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Author Info

  • Matt P. Dziubinski

    ()
    (Aarhus University and CREATES)

Abstract

We 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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File URL: ftp://ftp.econ.au.dk/creates/rp/11/rp11_09.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-09.

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Length: 18
Date of creation: 28 May 2011
Date of revision:
Handle: RePEc:aah:create:2011-09

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Stochastic volatility; volatility components; GARCH; option pricing.;

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Cited by:
  1. Matt P. Dziubinski, 2012. "Conditionally-uniform Feasible Grid Search Algorithm," CREATES Research Papers 2012-03, School of Economics and Management, University of Aarhus.

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