Rombouts, Jeroen V.K.; Stentoft, Lars - School of Economics and Management, University of Aarhus - 2009
While stochastic volatility models improve on the option pricing error when compared to the Black-Scholes-Merton model, mispricings remain. This paper uses mixed normal heteroskedasticity models to price options. Our model allows for significant negative skewness and time varying higher order...