GARCH option pricing models and the variance risk premium

Artikel

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.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

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

Klassifikation und Themen

• 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

Beteiligte, Orts- und Zeitangaben

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

Weitere Informationen

• DOI: doi:10.3390/jrfm13030051
• Handle: http://hdl.handle.net/10419/239129
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ