Discriminating between GARCH models for option pricing by their ability to compute accurate VIX measures

Christophe Chorro (1) , Fanirisoa Rahantamialisoa Hasinavonizaka Zazaravaka (1, 2)

1 CES - Centre d'économie de la Sorbonne
2 University of Ca’ Foscari [Venice, Italy]

In this paper, we discuss the pricing performances of a large collection of GARCH models by questioning the global synergy between the choice of the affine/non-affine GARCH specification, the use of competing alternatives to the Gaussian distribution, the selection of an appropriate pricing kernel and the choice of different estimation strategies based on several sets of financial information. Furthermore, the study answers an important question in relation to the correlation between the performance of a pricing scheme and its ability to forecast VIX dynamics. VIX analysis clearly appears as a parsimonious first-stage filter to discard the worst GARCH option pricing models.

Mots clés: GARCH option pricing models; GARCH implied VIX; estimation strategies; non-monotonic stochastic discount factors

Domaines: Economies et finances

Christophe Chorro, Fanirisoa Rahantamialisoa Hasinavonizaka Zazaravaka. Discriminating between GARCH models for option pricing by their ability to compute accurate VIX measures. 2020. ⟨halshs-02323959v2⟩