A COMPARISON OF PRICING KERNELS FOR GARCH OPTION PRICING WITH GENERALIZED HYPERBOLIC DISTRIBUTIONS-Reference-Cited by-同舟云学术

A COMPARISON OF PRICING KERNELS FOR GARCH OPTION PRICING WITH GENERALIZED HYPERBOLIC DISTRIBUTIONS

Published:2011-08 Issue:05 Volume:14 Page:669-708
ISSN:0219-0249
Container-title:International Journal of Theoretical and Applied Finance
language:en
Short-container-title:Int. J. Theor. Appl. Finan.

Author:

BADESCU ALEXANDRU¹,ELLIOTT ROBERT J.²³,KULPERGER REG⁴,MIETTINEN JARKKO⁵,SIU TAK KUEN⁶

Affiliation:

1. Department of Mathematics and Statistics, University of Calgary, Calgary, Canada

2. Department of Mathematical Sciences, University of Adelaide, Adelaide, Australia

3. Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada

4. Department of Statistics and Actuarial Science, University of Western Ontario, London, Ontario, Canada

5. Department of Mathematics and Statistics, University of Helsinki, Helsinki, Finland

6. Department of Applied Finance and Actuarial Studies, Faculty of Business and Economics, Macquarie University, Sydney, Australia

Abstract

Under discrete-time GARCH models markets are incomplete so there is more than one price kernel for valuing contingent claims. This motivates the quest for selecting an appropriate price kernel. Different methods have been proposed for the choice of a price kernel. Some of them can be justified by economic equilibrium arguments. This paper studies risk-neutral dynamics of various classes of Generalized Hyperbolic GARCH models arising from different price kernels. We discuss the properties of these dynamics and show that for some special cases, some pricing kernels considered here lead to similar risk neutral GARCH dynamics. Real data examples for pricing European options on the S&P 500 index emphasize the importance of the choice of a price kernel.

Publisher

World Scientific Pub Co Pte Lt

Subject

General Economics, Econometrics and Finance,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219024911006401

Reference53 articles.

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