An analytical approximation of option prices via TGARCH model
| Autor: | Dawud Thongtha, Warunya Hongwiengjan |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
Economics and Econometrics
edgeworth expansion Edgeworth expansion option pricing threshold GARCH (TGARCH) model Economic growth development planning Monetary economics Edgeworth series Regional economics. Space in economics Valuation of options Fair value HT388 Economics HD72-88 Volatility (finance) threshold garch (tgarch) model |
| Zdroj: | Ekonomska Istraživanja, Vol 34, Iss 1, Pp 948-969 (2021) Economic research-Ekonomska istraživanja Volume 34 Issue 1 |
| ISSN: | 1848-9664 1331-677X |
| Popis: | An option is a financial contract that can be used to reduce risks in an investment. It is widely known that a fair price of this contract depends significantly on the volatility of an underlying asset price, which may be affected differently by positive and negative information. Therefore, the fair price of option has been studied through various methods. In this research, an analytical formula for European option pricing via the TGARCH model is derived based on an Edgeworth expansion of the density of cumulative asset return. Furthermore, the accuracy of the proposed method is investigated by comparing numerical results with the GARCH model, TGARCH model, analytical approximation via the GARCH model and Monte Carlo technique. The results reveal that in the case of in the money (ITM) with K=St 0:95, the proposed method performed better than the others. The behaviour of the proposed method is also discussed. |
| Databáze: | OpenAIRE |
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