Short-term options with stochastic volatility: estimation and empirical performance

• Autores: Gabriele Fiorentini, Angel León Valle, Gonzalo Rubio Irigoyen
• Localización: Working papers = Documentos de trabajo: Serie AD, Nº. 25, 2000
• Idioma: inglés
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• Dialnet Métricas: 2 Citas
• Resumen

  • This paper examines the stochastic volatility model suggested by Heston (1993). We employ a time-series approach to estimate the model and we discuss the potential effects of time-varying skewness and kurtosis on the performance of the model. In particular, it is found that the model tends to overprice out-of-the-money calls and underprice in-the-money calls. It is also found that the daily volatility risk premium presents a quite volatile behavior over time; however, our evidence suggests that the volatility risk premium has a negligible impact on the pricing performance of Heston¿s model.