Groupe d’études et de recherche en analyse des décisions


Analytical Approximations for the GJR-GARCH and EGARCH Option Pricing Models

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In Duan, Gauthier and Simonato (1999), analytical formulas to approximate the price European options in the GARCH framework were developed. These formulas are however restricted to the NGARCH specification of Engle and Ng (1993), a GARCH process allowing the leverage effect. This paper develops and tests the formulas for two other important GARCH specifications which also allows for the leverage effect: the GJR-GARCH of Glosten et al. (1993) and the EGARCH of Nelson (1991).

, 29 pages