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
Englisch

Erschienen in
Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 13 ; Year: 2020 ; Issue: 3 ; Pages: 1-21 ; Basel: MDPI

Klassifikation
Wirtschaft
Contingent Pricing; Futures Pricing; option pricing
Model Evaluation, Validation, and Selection
Thema
GARCH option-pricing models
stochastic volatility
the CBOE VIX
variance risk premium

Ereignis
Geistige Schöpfung
(wer)
Zhang, WenJun
Zhang, Jin E.
Ereignis
Veröffentlichung
(wer)
MDPI
(wo)
Basel
(wann)
2020

DOI
doi:10.3390/jrfm13030051
Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Artikel

Beteiligte

  • Zhang, WenJun
  • Zhang, Jin E.
  • MDPI

Entstanden

  • 2020

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