Details
| Original language | English |
|---|---|
| Pages (from-to) | 971-994 |
| Number of pages | 24 |
| Journal | Journal of Futures Markets |
| Volume | 31 |
| Issue number | 10 |
| Publication status | Published - 1 Oct 2011 |
| Externally published | Yes |
Abstract
This study analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Accounting
- Business, Management and Accounting(all)
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of Futures Markets, Vol. 31, No. 10, 01.10.2011, p. 971-994.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - American option valuation
T2 - Implied calibration of GARCH pricing models
AU - Weber, Michael
AU - Prokopczuk, Marcel
PY - 2011/10/1
Y1 - 2011/10/1
N2 - This study analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.
AB - This study analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.
UR - http://www.scopus.com/inward/record.url?scp=79960954646&partnerID=8YFLogxK
U2 - 10.1002/fut.20496
DO - 10.1002/fut.20496
M3 - Article
AN - SCOPUS:79960954646
VL - 31
SP - 971
EP - 994
JO - Journal of Futures Markets
JF - Journal of Futures Markets
SN - 0270-7314
IS - 10
ER -