Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9663908 | European Journal of Operational Research | 2005 | 9 Pages |
Abstract
We develop an option pricing model which is based on a GARCH asset return process with α-stable innovations with truncated tails. The approach utilizes a canonic martingale measure as pricing measure which provides the possibility of a model calibration to market prices. The GARCH-stable option pricing model allows the explanation of some well-known anomalies in empirical data as volatility clustering and heavy tailedness of the return distribution. Finally, the results of Monte Carlo simulations concerning the option price and the implied volatility with respect to different strike and maturity levels are presented.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Christian Menn, Svetlozar T. Rachev,