We survey the theory and empirical evidence on GARCH option valuation models. We provide an overview of different functional forms for the volatility dynamic, multifactor models, nonnormal innovation distributions and valuation techniques. We also discuss alternative pricing kernels used for...

We develop a GARCH option model with a variance premium by combining the Heston-Nandi (2000) dynamic with a new pricing kernel that nests Rubinstein (1976) and Brennan (1979). While the pricing kernel is monotonic in the stock return and in variance, its projection onto the stock return is...