Pricing SPX and DIX by HAR models

Yow Jen Jou; Chih Wei Wang; Wan Chien Chiu

doi:10.1504/IJCSE.2010.030226

Pricing SPX and DIX by HAR models

Yow Jen Jou, Chih Wei Wang, Wan Chien Chiu

Department of Finance

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

Previous studies have documented that, with use of high-frequency data, the Heteroskedasticity AR (HAR- RV) model performs better than other models in fitting financial return volatility measurement and has a more accurate forecasting ability. However, to our knowledge, no previous studies have investigated whether HAR-RV model can improve option pricing performance in financial markets. This study compares HAR-RV model and EGARCH model in terms of option pricing performance. As expected, the results of this study demonstrate that HAR-RV model is more accurate than EGARCH model in terms of S&P500 Index options (SPX) and Dow Jones Index options (DIX).

Original language	English
Pages (from-to)	10-20
Number of pages	11
Journal	International Journal of Computational Science and Engineering
Volume	5
Issue number	1
DOIs	https://doi.org/10.1504/IJCSE.2010.030226
State	Published - 2010

Keywords

DIX
EGARCH model
HAR-RV model
High-frequency data
Moneyness effects
Option pricing performance
SPX

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10.1504/IJCSE.2010.030226

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title = "Pricing SPX and DIX by HAR models",

abstract = "Previous studies have documented that, with use of high-frequency data, the Heteroskedasticity AR (HAR- RV) model performs better than other models in fitting financial return volatility measurement and has a more accurate forecasting ability. However, to our knowledge, no previous studies have investigated whether HAR-RV model can improve option pricing performance in financial markets. This study compares HAR-RV model and EGARCH model in terms of option pricing performance. As expected, the results of this study demonstrate that HAR-RV model is more accurate than EGARCH model in terms of S&P500 Index options (SPX) and Dow Jones Index options (DIX).",

keywords = "DIX, EGARCH model, HAR-RV model, High-frequency data, Moneyness effects, Option pricing performance, SPX",

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AB - Previous studies have documented that, with use of high-frequency data, the Heteroskedasticity AR (HAR- RV) model performs better than other models in fitting financial return volatility measurement and has a more accurate forecasting ability. However, to our knowledge, no previous studies have investigated whether HAR-RV model can improve option pricing performance in financial markets. This study compares HAR-RV model and EGARCH model in terms of option pricing performance. As expected, the results of this study demonstrate that HAR-RV model is more accurate than EGARCH model in terms of S&P500 Index options (SPX) and Dow Jones Index options (DIX).

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Pricing SPX and DIX by HAR models

Abstract

Keywords

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