The detection of structural change and determination of lag lengths are long-standing issues in time series analysis. This paper demonstrates how these can be successfully married in a Bayesian analysis. By taking account of the inherent uncertainty about the lag length when deciding on the...

This paper examines the effect of using Black and Scholes formula for pricing and hedging options in a discrete time heteroskedastic environment. This is done by a simulation procedure where asset returns are generated from a GARCH (1,1)-t model. In the simulation a hypothetical trader writes an...