Friday, 18 March 2011: 10:00
Characterizing asset return dynamics using volatility models is an important part of empirical finance. Various empirical studies have shown that time-varying volatility of asset returns can be described by GARCH models. This paper shows how one can compute option prices using a Sign RCA GARCH model for the dynamics of the volatility. The proposed method is compared to the Black and Scholes evaluation. Empirical example is related to the WIG20 index on the Warsaw Stock Exchange.