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Option valuation with the simplified component GARCH model

Author

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  • 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.

Suggested Citation

  • Matt P. Dziubinski, 2011. "Option valuation with the simplified component GARCH model," CREATES Research Papers 2011-09, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2011-09
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    File URL: ftp://ftp.econ.au.dk/creates/rp/11/rp11_09.pdf
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    Cited by:

    1. Matt P. Dziubinski, 2012. "Conditionally-uniform Feasible Grid Search Algorithm," CREATES Research Papers 2012-03, Department of Economics and Business Economics, Aarhus University.

    More about this item

    Keywords

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

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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