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ARCH Models and Option Pricing: The Continuous Time Connection

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  • Fornari, F.
  • Mele, A.

Abstract

To implement continuous time option pricing models in which ARCH models can be used as direct or indirect approximators of stochastic volatility, we construct continuous time economies exhibiting equilibrium dynamics to which most asymmetric ARCH models converge in distribution as the sample frequency gets infinite.

Suggested Citation

  • Fornari, F. & Mele, A., 1998. "ARCH Models and Option Pricing: The Continuous Time Connection," Papers 9830, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    • Handle: RePEc:fth:pnegmi:9830
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    Cited by:

    1. F. Fornari & A. Mele, 1998. "ARCH Models and Option Pricing : The Continuous Time Connection," THEMA Working Papers 98-30, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Antonio Mele & Fabio Fornari, 1999. "Stochastic Volatility and the Informational Content of Option Prices: Empirical Analysis," Computing in Economics and Finance 1999 912, Society for Computational Economics.

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    More about this item

    Keywords

    PRICING ; ECONOMIC MODELS ; STOCHASTIC MODELS mathematiques et informatique; 200; avenue de la Republique 9 2001 Nanterre CEDEX. 41p.;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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