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Option pricing for some stochastic volatility models

A. Thavaneswaran (University of Manitoba, Winnipeg, Canada Department of Statistics, Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA)
J. Singh (Department of Statistics, Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA)
S.S. Appadoo (Department of Supply Chain Management, University of Manitoba, Winnipeg, Canada)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 August 2006

1034

Abstract

Purpose

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To study stochastic volatility in the pricing of options.

Design/methodology/approach

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Random‐coefficient autoregressive and generalized autoregressive conditional heteroscedastic models are studied. The option‐pricing formula is viewed as a moment of a truncated normal distribution.

Findings

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Kurtosis for RCA and for GARCH process is derived. Application of random coefficient GARCH kurtosis in analytical approximation of option pricing is discussed.

Originality/value

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Findings are useful in financial modeling.

Keywords

Citation

Thavaneswaran, A., Singh, J. and Appadoo, S.S. (2006), "Option pricing for some stochastic volatility models", Journal of Risk Finance, Vol. 7 No. 4, pp. 425-445. https://doi.org/10.1108/15265940610688982

Publisher

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Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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