European Option Pricing under the Regime-Switching Garch Model

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dc.contributor.authorKalovwe, Sebstian Kaweto
dc.contributor.authorMwaniki, Ivivi Joseph
dc.contributor.authorSimwa, Richard Onyino
dc.date.accessioned2024-09-17T08:49:09Z
dc.date.available2024-09-17T08:49:09Z
dc.date.issued2022
dc.descriptionJournal Article
dc.description.abstractGARCH model and its extension is the most common and widespread approach used in modeling volatility. However, the existing literature indicates that these models are not able to capture structural changes in the variance process. The financial markets are known to exhibit structural breaks which may be caused by the changing variance process. Therefore, a model that allows its parameters to change with time is necessary so as to account for the structural variance changes. This study proposes a regime switching GARCH model that is able to capture the changing variances in each regime. The model is then utilized to estimate the European option prices for the Russell 2000, Facebook and Google indices with an aim to compare its performance with that of Black-Scholes and Regime switching models. The results indicate that regime switching GARCH perform better than Black-Scholes and Regime switching models when applied to long-dated options contract. However, Black-Scholes model is better for analyzing short-dated options contrac
dc.identifier.citationKalovwe, S. K., Mwaniki, I. J., & Simwa, R. O. (2022). European Option Pricing under the Regime-Switching Garch Model. Financial Mathematics and Applications
dc.identifier.issn2217-7795
dc.identifier.urihttps://repository.daystar.ac.ke/handle/123456789/5141
dc.language.isoen
dc.publisherFinancial Mathematics and Applications
dc.relation.ispartofseries7(1)
dc.subjectGarch Model
dc.subjectRegime-switching
dc.subjectPricing
dc.titleEuropean Option Pricing under the Regime-Switching Garch Model
dc.typeArticle

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