The GARCH Option Pricing Model: A Modification of Lattice Approach
- Chun-Chou Wu
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Ritchken and Trevor (1999) proposed a lattice approach for pricing American options under discrete time-varying volatility GARCH frameworks. Even though the lattice approach worked well for the pricing of the GARCH options, it was inappropriate when the option price was computed on the lattice using standard backward recursive procedures, even if the concepts of Cakici and Topyan (2000) were incorporated. This paper shows how to correct the deficiency and that with our adjustment, the lattice method performs properly for option pricing under the GARCH process.
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- The GARCH Option Pricing Model: A Modification of Lattice Approach
Review of Quantitative Finance and Accounting
Volume 26, Issue 1 , pp 55-66
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
- Additional Links
- American options
- lattice algorithm
- trinomial trees.
- Industry Sectors
- Chun-Chou Wu (1)
- Author Affiliations
- 1. Department of International Trade, Chung Yuan University, Chung-Li, Taiwan