WHICH IS BETTER: HOMOSKEDASTIS OR HETEROSKEDASTIS VOLATILITY MODEL FOR OPTION PRICING? (Test Of Black-Scholes Option Model And Garch Option Model At The Indonesian Stock Exchange)
No Thumbnail Available
Date
2009
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Malaysia Pahang
Abstract
The purpose of this research is to compare the accuracy of Black-Scholes Option Model and GARCH option
models for Stock option utilizing data from Astra, BCA, Indofood and Telkom at the Indonesian Stock
Exchange. The intraday stock return of Astra, BCA, Indofood and Telkom exhibits an overwhelming presence
of volatility clustering; suggesting that GARCH model has an effect which best corresponds with the actual
price. The best model is constructed using ARIMA model and the best lag in GARCH model is extracted. The
finding from this research show that by comparing the average percentage mean squared errors of the GARCH
Option Model and the Black-Scholes Option Model, the former was found more accurate than the latter.
GARCH Model relatively improves average percentage mean squared errors of Black-Scholes Model ; one
month option shows a twenty eight point ten percent improvement, two month option shows twenty three point
thirty percent and three month option shows twenty percent.
Description
Keywords
ARIMA, Black-Scholes Option Pricing Model, GARCH Option Model, Indonesian Stock Exchange