Pricing SPX and DIX by HAR models
by Yow-Jen Jou, Chih-Wei Wang, Wan-Chien Chiu
International Journal of Computational Science and Engineering (IJCSE), Vol. 5, No. 1, 2010

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).

Online publication date: Fri, 11-Dec-2009

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