Realizing smiles: Options pricing with realized volatility |
| |
Authors: | Fulvio Corsi Nicola Fusari Davide La Vecchia |
| |
Affiliation: | 1. University of St. Gallen and Swiss Finance Institute, St. Gallen, Switzerland;2. Department of Finance, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, USA;3. Monash University, Department of Econometrics and Business Statistics, Melbourne, Victoria, Australia |
| |
Abstract: | We develop a discrete-time stochastic volatility option pricing model exploiting the information contained in the Realized Volatility (RV), which is used as a proxy of the unobservable log-return volatility. We model the RV dynamics by a simple and effective long-memory process, whose parameters can be easily estimated using historical data. Assuming an exponentially affine stochastic discount factor, we obtain a fully analytic change of measure. An empirical analysis of Standard and Poor's 500 index options illustrates that our model outperforms competing time-varying and stochastic volatility option pricing models. |
| |
Keywords: | High-frequency Realized volatility Option pricing |
本文献已被 ScienceDirect 等数据库收录! |
|