On practitioners closed-form GARCH option pricing

Simple item page
dc.citation.volume94
dc.contributor.authorMozumder S
dc.contributor.authorFrijns B
dc.contributor.authorTalukdar B
dc.contributor.authorKabir MH
dc.date.accessioned2024-06-10T01:50:39Z
dc.date.available2024-06-10T01:50:39Z
dc.date.issued2024-07
dc.description.abstractThis paper proposes a practitioner version of Heston and Nandi's (2000) (HN) model, which we term the Practitioner's Heston Nandi, or PHN model. We compare the option pricing and hedging performance of the PHN model vis-à-vis the HN model. Instead of using a one-period ahead volatility forecast for all options used in calibrations at any given time, the PHN model proposes using forward-looking ad-hoc volatilities (implied by market option prices) for each individual option and maturity in calibration and hedging. Since the proposed PHN model uses only option price data, it renders historical stock price data redundant, cutting the data requirement in derivative valuation. We employ options traded at CBOE for the period January 1, 2016 to December 31, 2018 and show that the proposed PHN model yields quick calibration and significantly improves pricing and hedging for European-style options.
dc.description.confidentialfalse
dc.edition.editionJuly 2024
dc.identifier.citationMozumder S, Frijns B, Talukdar B, Kabir MH. (2024). On practitioners closed-form GARCH option pricing. International Review of Financial Analysis. 94.
dc.identifier.doi10.1016/j.irfa.2024.103296
dc.identifier.eissn1873-8079
dc.identifier.elements-typejournal-article
dc.identifier.issn1057-5219
dc.identifier.number103296
dc.identifier.piiS105752192400228X
dc.identifier.urihttps://mro.massey.ac.nz/handle/10179/69759
dc.languageEnglish
dc.publisherElsevier Inc
dc.publisher.urihttps://www.sciencedirect.com/science/article/pii/S105752192400228X
dc.relation.isPartOfInternational Review of Financial Analysis
dc.rights(c) 2024 The Author/s
dc.rightsCC BY 4.0
dc.rights.urihttps://creativecommons.org/licenses/by/4.0/
dc.subjectHeston-Nandi model
dc.subjectMarket price of riskHedgingE
dc.subjectEuropean-style options
dc.titleOn practitioners closed-form GARCH option pricing
dc.typeJournal article
pubs.elements-id488586
pubs.organisational-groupOther
Files
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
488586 PDF.pdf
Size:
7.67 MB
Format:
Adobe Portable Document Format
Description:
Published version.pdf
Download
License bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
license.txt
Size:
9.22 KB
Format:
Plain Text
Description:
Download
Collections
Journal Articles