In this paper we study a conditional version of the Wang transform in the context of discrete GARCH models and their diffusion limits. Our first contribution shows that the conditional Wang transform and Duan's generalized local risk-neutral valuation relationship based on equilibrium...

This paper investigates the pricing and weak convergence of an asymmetric non-affine, non-Gaussian GARCH model when the risk-neutralization is based on a variance dependent exponential linear pricing kernel with stochastic risk aversion parameters. The risk-neutral dynamics are obtained for a...

This paper investigates the weak convergence of general non-Gaussian GARCH models together with an application to the pricing of European style options determined using an extended Girsanov principle and a conditional Esscher transform as the pricing kernel candidates. Applying these changes of...

The estimation of multivariate GARCH time series models is a difficult task mainly due to the excessive parameterization exhibited by the problem, usually referred to as the "curse of dimensionality." For the VEC family, the number of parameters involved in the model grows as a polynomial of...

The use of the Kalman filter for estimation purposes is not always an easy task despite the obvious advantages in many situations of the state-space representation. This is in part due to the fact that the computation of the corresponding score (gradient of the log-likelihood) is sometimes...

We propose different schemes for option hedging when asset returns are modeled using a general class of GARCH models. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended Girsanov principle that generalizes Duan's (1995) delta...