The Stochastic Volatility Option Pricing Model: Evidence from a Highly Volatile Market

• 발행기관: 한국유통과학회
• 저자명: Woraphon WATTANATORN Kedwadee SOMBULTAWEE
• 간행물 정보: 『The Journal of Asian Finance, Economics and Business(JAFEB)』Vol. 8 No.2, 685~695쪽, 전체 11쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2021.02.28

영문 초록

This study explores the impact of stochastic volatility in option pricing. To be more specific, we compare the option pricing performance between stochastic volatility option pricing model, namely, Heston option pricing model and standard Black-Scholes option pricing. Our finding, based on the market price of SET50 index option between May 2011 and September 2020, demonstrates stochastic volatility of underlying asset return for all level of moneyness. We find that both deep in the money and deep out of the money option exhibit higher volatility comparing with out of the money, at the money, and in the money option. Hence, our finding confirms the existence of volatility smile in Thai option markets. Further, based on calibration technique, the Heston option pricing model generates smaller pricing error for all level of moneyness and time to expiration than standard Black-Scholes option pricing model, though both Heston and Black-Scholes generate large pricing error for deep-in-the-money option and option that is far from expiration. Moreover, Heston option pricing model demonstrates a better pricing accuracy for call option than put option for all level and time to expiration. In sum, our finding supports the outperformance of the Heston option pricing model over standard Black-Scholes option pricing model.

목차

1. Introduction

2. Literature Review

3. Research Methods and Data

4. Results and Discussion

5. Conclusion

키워드

Stochastic Volatility Option Pricing Models Performance Comparison Heston Option Pricing Model Nonconstant Volatility