Estimation of market prices of risks in the GARCH diffusion model

doi:10.1080/1331677X.2017.1421989

CORC > 数学与系统科学研究院 > 中国科学院数学与系统科学研究院 > 系统科学研究所

	Estimation of market prices of risks in the GARCH diffusion model
	Wu, Xinyu 1; Zhou, Hailin 1; Wang, Shouyang2
刊名	ECONOMIC RESEARCH-EKONOMSKA ISTRAZIVANJA
	2018-01-15
卷号	31 期号:1 页码:15-36
关键词	Market prices of risks GARCH diffusion model option pricing efficient importance sampling maximum likelihood particle filter
ISSN号	1331-677X
DOI	10.1080/1331677X.2017.1421989
英文摘要	In this paper we propose an estimation procedure which uses joint data on the underlying asset and option prices to extract market prices of return and volatility risks in the context of the G.A.R.C.H. diffusion model. The procedure is flexible and simple to implement. Firstly, a quasi-closed form pricing formula for European options in the G.A.R.C.H. diffusion model is derived. This result greatly eases the computational burden for computing option prices, and well suited for our model estimation. Then, based upon the joint data, we develop an efficient importance sampling-based maximum likelihood (E.I.S.-M.L.) estimation method for the objective and risk-neutral parameters of the G.A.R.C.H. diffusion model and a particle filter algorithm for latent state variable. Hence, this allows us to infer the market prices of risks that link the objective measure and the risk-neutral measure. Finally, we illustrate our approach using actual data on the Hang Seng Index (H.S.I.) and index warrant prices. The results show that both the return and volatility risks are priced by the market. Moreover, an option pricing study demonstrates that the market price of the volatility risk plays an important role in fitting option prices.
资助项目	National Natural Science Foundation of China[71501001] ; National Natural Science Foundation of China[71101001] ; M.O.E. (Ministry of Education in China) Project of Humanities and Social Sciences[14YJC790133] ; China Postdoctoral Science Foundation[2015M580416] ; Natural Science Foundation of Anhui Province of China[1408085QG139] ; Anhui Province College Excellent Young Talents Fund of China[2013SQRW025ZD]
WOS研究方向	Business & Economics
语种	英语
出版者	ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
WOS记录号	WOS:000423620300002
内容类型	期刊论文
源URL	[http://ir.amss.ac.cn/handle/2S8OKBNM/29502]
专题	系统科学研究所
通讯作者	Wu, Xinyu
作者单位	1.Anhui Univ Finance & Econ, Sch Finance, Bengbu, Peoples R China 2.Chinese Acad Sci, Acad Math & Syst Sci, Beijing, Peoples R China
推荐引用方式 GB/T 7714	Wu, Xinyu,Zhou, Hailin,Wang, Shouyang. Estimation of market prices of risks in the GARCH diffusion model[J]. ECONOMIC RESEARCH-EKONOMSKA ISTRAZIVANJA,2018,31(1):15-36.
APA	Wu, Xinyu,Zhou, Hailin,&Wang, Shouyang.(2018).Estimation of market prices of risks in the GARCH diffusion model.ECONOMIC RESEARCH-EKONOMSKA ISTRAZIVANJA,31(1),15-36.
MLA	Wu, Xinyu,et al."Estimation of market prices of risks in the GARCH diffusion model".ECONOMIC RESEARCH-EKONOMSKA ISTRAZIVANJA 31.1(2018):15-36.