Author:
Thavaneswaran A.,Singh J.,Appadoo S.S.
Abstract
PurposeTo study stochastic volatility in the pricing of options.Design/methodology/approachRandom‐coefficient autoregressive and generalized autoregressive conditional heteroscedastic models are studied. The option‐pricing formula is viewed as a moment of a truncated normal distribution.FindingsKurtosis for RCA and for GARCH process is derived. Application of random coefficient GARCH kurtosis in analytical approximation of option pricing is discussed.Originality/valueFindings are useful in financial modeling.
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