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GARCH option pricing models with Meixner innovations

Author

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  • Matthias R. Fengler

    (University of St. Gallen)

  • Alexander Melnikov

    (University of St. Gallen)

Abstract

The paper presents GARCH option pricing models with Meixner-distributed innovations. The risk-neutral dynamics are derived by means of the conditional Esscher transform. Assessing the option pricing performance both in-sample and out-of-sample, we find that the models compare favorably against the benchmark models. Simulations suggest that the driver of these results is the impact of conditional skewness and conditional excess kurtosis on option prices.

Suggested Citation

  • Matthias R. Fengler & Alexander Melnikov, 2018. "GARCH option pricing models with Meixner innovations," Review of Derivatives Research, Springer, vol. 21(3), pages 277-305, October.
    • Handle: RePEc:kap:revdev:v:21:y:2018:i:3:d:10.1007_s11147-017-9141-7
    DOI: 10.1007/s11147-017-9141-7
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    More about this item

    Keywords

    GARCH models; Meixner distribution; Esscher transform; Option pricing;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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