A GARCH option pricing model with filtered historical simulation

被引:135
作者
Barone-Adesi, Giovanni [1 ]
Engle, Robert F. [2 ]
Mancini, Loriano [3 ]
机构
[1] Univ Lugano, Swiss Finance Inst, CH-6900 Lugano, Switzerland
[2] NYU, Stern Sch Business, New York, NY 10003 USA
[3] Univ Zurich, Swiss Banking Inst, CH-8006 Zurich, Switzerland
关键词
D O I
10.1093/rfs/hhn031
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics, which enhances the model's flexibility to fit market option prices. An extensive empirical analysis based on S&P 500 index options shows that our model outperforms other competing GARCH pricing models and ad hoc Black-Scholes models. We show that the flexible change of measure, the asymmetric GARCH volatility, and the nonparametric innovation distribution induce the accurate pricing performance of our model. Using a nonparametric approach, we obtain decreasing state-price densities per unit probability as suggested by economic theory and corroborating our GARCH pricing model. Implied volatility smiles appear to be explained by asymmetric volatility and negative skewness of filtered historical innovations.
引用
收藏
页码:1223 / 1258
页数:36
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