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Estimation of stochastic volatility and option prices

Author

Listed:
  • Suk Joon Byun
  • Jung‐Soon Hyun
  • Woon Jun Sung

Abstract

This study suggests a method to estimate a stochastic volatility model incorporating both information on high/low prices and the leverage effect. The likelihood‐based inference of Markov Chain Monte Carlo is conducted to estimate parameters and volatility. Simulation reveals that our method improves estimation and pricing options. We also find that the information on high/low prices is more likely to contribute to the improvement than the leverage effect.

Suggested Citation

  • Suk Joon Byun & Jung‐Soon Hyun & Woon Jun Sung, 2021. "Estimation of stochastic volatility and option prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(3), pages 349-360, March.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:3:p:349-360
    DOI: 10.1002/fut.22168
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    References listed on IDEAS

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    Cited by:

    1. Rodrigo Alfaro & Catalina Estefó, 2025. "Tail-Risk Indicators with Time-Variant Volatility Models: the case of the Chilean Peso," Working Papers Central Bank of Chile 1041, Central Bank of Chile.

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