We propose a conditional Bilateral Gamma model, in which the shape parameters of the Bilateral Gamma distribution have a Garch-like dynamics. After risk neutralization by means of a Bilateral Esscher Transform, the model admits a recursive procedure for the computation of the characteristic function of the underlying at maturity, à la Heston and Nandi (2000). We compare the calibration performance on SPX options with the models of Heston and Nandi (2000), Christoffersen, Heston and Jacobs (2006) and with a Dynamic Variance Gamma model introduced in Mercuri and Bellini (2011), obtaining promising results
Option pricing in a conditional bilateral gamma model / F. Bellini, L. Mercuri. - In: CENTRAL EUROPEAN JOURNAL OF OPERATIONS RESEARCH. - ISSN 1435-246X. - 22:2 Special issue(2014 Jun), pp. 373-390. [10.1007/s10100-013-0286-7]
Option pricing in a conditional bilateral gamma model
L. Mercuri
Ultimo
2014
Abstract
We propose a conditional Bilateral Gamma model, in which the shape parameters of the Bilateral Gamma distribution have a Garch-like dynamics. After risk neutralization by means of a Bilateral Esscher Transform, the model admits a recursive procedure for the computation of the characteristic function of the underlying at maturity, à la Heston and Nandi (2000). We compare the calibration performance on SPX options with the models of Heston and Nandi (2000), Christoffersen, Heston and Jacobs (2006) and with a Dynamic Variance Gamma model introduced in Mercuri and Bellini (2011), obtaining promising resultsFile | Dimensione | Formato | |
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Bellini-Mercuri2014_Article_OptionPricingInAConditionalBil.pdf
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