Option pricing under autoregressive random variance models | Macquarie University ResearchOnline

Home

Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.14/138733

19 Visitors

20 Hits

0 Downloads

Title: Option pricing under autoregressive random variance models
Related: North American actuarial journal, Vol. 10, Issue 2, (2006), p.62-75
Related: http://www.soa.org/library/journals/north-american-actuarial-journal/2006/april/naaj0602_4.pdf
Publisher: Society of Actuaries
Date: 2006
FoR/RFCD Code(s): 010200 Applied Mathematics
Author/Creator: Siu, Tak Kuen
Description: The autoregressive random variance (ARV) model introduced by Taylor (1980, 1982, 1986) is a popular version of stochastic volatility (SV) models and a discrete-time simplification of the continuous-time diffusion SV models. This paper introduces a valuation model for options under a discrete-time ARV model with general stock and volatility innovations. It employs the discretetime version of the Esscher transform to determine an equivalent martingale measure under an incomplete market. Various parametric cases of the ARV models, are considered, namely, the lognormal ARV models, the jump-type Poisson ARV models, and the gamma ARV models, and more explicit pricing formulas of a European call option under these parametric cases are provided. A Monte Carlo experiment for some parametric cases is also conducted.
Description: 14 page(s)
Subject Keyword: 010200 Applied Mathematics
Resource Type: journal article
Organisation: Macquarie University. Dept. of Actuarial Studies

Macquarie University ResearchOnline