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Modeling S&P500 returns with GARCH models

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  • Rodrigo Alfaro
  • Alejandra Inzunza

Abstract

This paper provides several estimates of the parameters of a GARCH model for the S&P500 index, based on: (i) returns, (ii) returns and CBOE VIX, and (iii) returns, CBOE VIX, and other option-based indexes reported by the Federal Reserve of Minneapolis. We conclude that by including option-based indexes alternative calibrations are obtained, which can be used to compute improved tail-risk statistics under the risk neutral measure, providing a better assessment of the occurrence of extreme events.

Suggested Citation

  • Rodrigo Alfaro & Alejandra Inzunza, 2022. "Modeling S&P500 returns with GARCH models," Working Papers Central Bank of Chile 955, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:955
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    References listed on IDEAS

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    1. Jinji Hao & Jin E. Zhang, 2013. "GARCH Option Pricing Models, the CBOE VIX, and Variance Risk Premium," Journal of Financial Econometrics, Oxford University Press, vol. 11(3), pages 556-580, June.
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    6. Wenjun Zhang & Jin E. Zhang, 2020. "GARCH Option Pricing Models and the Variance Risk Premium," JRFM, MDPI, vol. 13(3), pages 1-21, March.
    7. Warunya Hongwiengjan & Dawud Thongtha, 2021. "An analytical approximation of option prices via TGARCH model," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 948-969, January.
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    Cited by:

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    2. 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.
    3. Herrera, Rodrigo & Piña, Marco, 2024. "Market risk modeling with option-implied covariances and score-driven dynamics," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).

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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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