In this thesis the GARCH models are applied to evaluate financial options and futures. In the first application, the GARCH models in parsimonious form are studied for pricing the S&P500 options. Unlike previous studies that focus on developed formulation, the results indicate that simplified models provide effective performance and it is the simple GARCH model that yields the least valuation error. To our consideration, examining model possessing simplification is of practical importance because model estimation becomes readily accessible through available econometric software, which circumvent programming barriers in implementing alternative one’s own pricing methods.
The second application consider the component GARCH models for currency option pricing. The valuation results favour the component formulations particularly in the pricing of long term contracts. Volatility modelling results indicate that the return-volatility relationship is symmetric in the long run, but over the short term asymmetry also arises in the EURUSD and GBPUSD exchange rates.
The third application evaluates canola futures in Canada in relation to spot market price. Results confirm the cointegrating relationship with threshold corresponding to transaction and adjustment cost. And it is the futures market that adjusts actively to price disparities but in the meantime there is volatility spillover from futures to the spot market.
Overall, our empirical assessments indicate the importance of the time varying volatility and the improvements achieved in option pricing and futures evaluation. We believe the present study’s analysis provides useful suggestions and further guidance to practitioners and investors for the pricing and trading in the equity and foreign exchange markets, also to the market agents to better evaluate price uncertainty in order to guard against adverse price changes.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/17407 |
| Date | January 2017 |
| Creators | Wang, Yizhe |
| Contributors | Adkins, Roger, Sharma, Abhijit |
| Publisher | University of Bradford, University of Bradford, School of Management |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Thesis, doctoral, PhD |
| Rights | <a rel="license" href="http://creativecommons.org/licenses/by-nc-nd/3.0/"><img alt="Creative Commons License" style="border-width:0" src="http://i.creativecommons.org/l/by-nc-nd/3.0/88x31.png" /></a><br />The University of Bradford theses are licenced under a <a rel="license" href="http://creativecommons.org/licenses/by-nc-nd/3.0/">Creative Commons Licence</a>. |
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