Pricing American Options when the Underlying Asset follows GARCH processes

@inproceedings{Stentoft2004PricingAO,
  title={Pricing American Options when the Underlying Asset follows GARCH processes},
  author={Lars Stentoft},
  year={2004}
}
As extensions to the Black-Scholes model with constant volatility, option pricing models with time-varying volatility have been suggested within the framework of generalized autoregressive conditional heteroskedasticity (GARCH). However, application of the GARCH option pricing model has been hampered by the lack of simulation techniques able to incorporate early exercise features. In the present paper, we show how new simulation techniques can be used to price options which have the possibility… CONTINUE READING
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