Option pricing under GARCH models with generalized hyperbolic innovations (I) : methodology
AbstractIn this paper, we present an alternative to the Black Scholes model for a discrete time economy using GARCH-type models for the underlying asset returns with Generalized Hyperbolic (GH) innovations that are potentially skewed and leptokurtic. Assuming that the stochastic discount factor is an exponential affine function of the states variables, we show that this class of distributions is stable under the Risk neutral change of probability.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number b08037.
Length: 21 pages
Date of creation: May 2008
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GARCH; Generalized Hyperbolic Distribution; pricing; risk neutral distribution.;
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Find related papers by JEL classification:
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Christophe Chorro & Dominique Guegan & Florian Ielpo, 2009.
"Martingalized historical approach for option pricing,"
Documents de travail du Centre d'Economie de la Sorbonne
09021, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Chorro, C. & Guégan, D. & Ielpo, F., 2010. "Martingalized historical approach for option pricing," Finance Research Letters, Elsevier, vol. 7(1), pages 24-28, March.
- repec:hal:journl:hal-00308687 is not listed on IDEAS
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