We propose a conditional Bilateral Gamma model, in which the shape parameters of the Bilateral Gamma distribution have a Garch-like dynam- ics. After risk neutralization by means of a Bilateral Esscher Transform, the model admits a recursive procedure for the computation of the char- acteristic 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), Christo¤ersen, Heston and Jacobs (2006) and with a Dynamic Variance Gamma model introduced in Mercuri and Bellini (2011), obtaining promising results

Bellini, F., Mercuri, L. (2012). Option pricing in a conditional Bilateral Gamma model [Working paper del dipartimento].

Option pricing in a conditional Bilateral Gamma model

BELLINI, FABIO;MERCURI, LORENZO
2012

Abstract

We propose a conditional Bilateral Gamma model, in which the shape parameters of the Bilateral Gamma distribution have a Garch-like dynam- ics. After risk neutralization by means of a Bilateral Esscher Transform, the model admits a recursive procedure for the computation of the char- acteristic 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), Christo¤ersen, Heston and Jacobs (2006) and with a Dynamic Variance Gamma model introduced in Mercuri and Bellini (2011), obtaining promising results
Working paper del dipartimento
Scientifica
Bilateral Gamma, Garch, Bilateral Esscher Transform, semi-analytical pricing, SPX options.
English
Bellini, F., Mercuri, L. (2012). Option pricing in a conditional Bilateral Gamma model [Working paper del dipartimento].
Bellini, F; Mercuri, L
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/30641
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