A1153
Title: A non-Gaussian, structure-preserving stochastic volatility and option pricing model in discrete time
Authors: Simon Feistle - University of Sankt Gallen (Switzerland) [presenting]
Matthias Fengler - University of Sankt Gallen (Switzerland)
Alexander Melnikov - University of Sankt Gallen (Switzerland)
Abstract: A novel stochastic volatility model is provided based on the autoregressive Gamma process that allows for both a structure-preserving change to the risk-neutral measure and a non-Gaussian distribution for the return innovations. The model employs the Meixner distribution, which enriches the return dynamics with conditional stochastic skewness and kurtosis. A fast and accurate estimation method is proposed by combining the approximate maximum likelihood method of a prior study with a numerical integration technique suitable for highly oscillatory functions. A closed-form discrete-time option pricing formula is derived. The Meixner specification is superior to the benchmark of their family, especially when calibrated to option data.
