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Option Pricing for TGARCH-M with GED Based on Improved EEMD

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  • Tingfeng Jiang
  • Qiuling Hua

Abstract

Although option pricing plays an important role in risk management and investments, accurately pricing options remains challenging because of the increasingly complicated fluctuations in asset price processes. This article proposes a new option pricing model, the threshold GARCH with generalized error distribution (TGARCH-M with GED), based on an improved EEMD. By considering three key factors in the option pricing framework: different frequency risks, information asymmetry and non-normality, we show this novel model can capture more volatility features. Furthermore, the empirical results indicate we obtain better parameter estimation results and fewer pricing errors through comparative analysis. Our research provides meaningful guidance and new insights in the fields of risk management and investment.

Suggested Citation

  • Tingfeng Jiang & Qiuling Hua, 2019. "Option Pricing for TGARCH-M with GED Based on Improved EEMD," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(13), pages 2929-2948, October.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:13:p:2929-2948
    DOI: 10.1080/1540496X.2018.1561365
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