Generalized hyperbolic model: European option pricing in developed and emerging markets Conference Paper uri icon

abstract

  • Generalized Hyperbolic Distribution and some of it sub classes like normal, hyperbolic and variance gamma distributions are used to fit daily log returns of eight listed companies in Nairobi Stock Exchange (NSE) and Montreal Exchange. We use EM-based ML estimation procedure to locate parameters of the model. Densities of Simulated and Empirical data are used to measure how well model fits the data. We use goodness of fit statistics to compare the selected distributions. Empirical results indicate that Generalized hyperbolic Distribution is capable of correcting bias of Black-Scholes and Merton normality assumption both in Developed and Emerging markets. Moreover both markets do have different stochastic time clock

publication date

  • 2007