Artikel
GARCH option pricing models and the variance risk premium
In this paper, we modify Duan's (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option-pricing models. In our mLRNVR, the conditional variances under two measures are designed to be different and the variance process is more persistent in the risk-neutral measure than in the physical one, so that one is able to capture the variance risk premium. Empirical estimation exercises show that the GARCH option-pricing models under our mLRNVR are able to price the SPX one-month variance swap rate, i.e., the CBOE Volatility Index (VIX) accurately. Our research suggests that one should use our mLRNVR when pricing options with GARCH models.
- Sprache
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Englisch
- Erschienen in
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Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 13 ; Year: 2020 ; Issue: 3 ; Pages: 1-21 ; Basel: MDPI
- Klassifikation
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Wirtschaft
Contingent Pricing; Futures Pricing; option pricing
Model Evaluation, Validation, and Selection
- Thema
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GARCH option-pricing models
stochastic volatility
the CBOE VIX
variance risk premium
- Ereignis
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Geistige Schöpfung
- (wer)
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Zhang, WenJun
Zhang, Jin E.
- Ereignis
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Veröffentlichung
- (wer)
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MDPI
- (wo)
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Basel
- (wann)
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2020
- DOI
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doi:10.3390/jrfm13030051
- Handle
- Letzte Aktualisierung
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10.03.2025, 11:41 MEZ
Datenpartner
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Objekttyp
- Artikel
Beteiligte
- Zhang, WenJun
- Zhang, Jin E.
- MDPI
Entstanden
- 2020