Journal of East China Normal University(Natural Sc ›› 2008, Vol. 2008 ›› Issue (5): 17-26,4.

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Bivariate option pricing with GARCH-NIG model and dynamic copula(English)

ZHANG Jing1,2,DOMINIQUE Guégan3,CHAI Jun4   

  1. 1.Department of Statistics,East China Normal University,Shanghai 200062,China;2.Department of Mathematics,Ecole Normale Supérieure de Cachan,Cachan 94230,France;3.Centre d’Economie Sorbonne,Université Paris 1,Paris 75647,France;4.Department of Mathematics, East China Normal University, Shanghai 200062,China
  • Received:2007-11-10 Revised:2008-01-21 Online:2008-09-25 Published:2008-09-25
  • Contact: ZHANG Jing

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Abstract: GARCH process was developed with the combination of dynamic copula for pricing bivariate contingent claims.Inorder to take into account the stylized factors in finance,such as skewness,leptokurtosis and fat tails,NIG distribution was fitted for residuals.Furthermore,the dynamic copula method was applied to describe the dependence structure between the underlying assets.The approach was illustrated with call-on-max option of Shanghai and Shenzhen Stock Composite Indices.The results showed the advantage of the suggested approach.

Key words: GARCH process, NIG distribution, copula, dynamic copula, call-on-maxoption, GARCH process, NIG distribution, copula, dynamic copula

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