This paper discusses risk-minimizing hedging strategies under affine GARCH models driven by Gaussian innovations. First, we derive a closed-form expression for an optimal hedge ratio under this model that is applicable to European derivatives with payoff functions that admit an inverse Laplace...

In this paper we propose semi-closed-form solutions, subject to an inversion of the Fourier transform, for the price of VIX options and target volatility options (TVOs) under affine GARCH models based on Gaussian and Inverse Gaussian distributions. We illustrate the advantage of the proposed...

This paper investigates the pricing and weak convergence of an asymmetric non-affine, non-Gaussian GARCH model when the risk-neutralization is based on a variance dependent exponential linear pricing kernel with stochastic risk aversion parameters. The risk-neutral dynamics are obtained for a...

This paper investigates the weak convergence of general non-Gaussian GARCH models together with an application to the pricing of European style options determined using an extended Girsanov principle and a conditional Esscher transform as the pricing kernel candidates. Applying these changes of...

In this paper, we derive fully explicit closed-form expressions for the fair strike prices of discrete-time variance swaps under general affine GARCH type models that have been risk-neutralized with a family of variance dependent pricing kernels. The methodology relies on solving differential...

We propose different schemes for option hedging when asset returns are modeled using a general class of GARCH models. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended Girsanov principle that generalizes Duan's (1995) delta...

This paper proposes an efficient way to implement quadratic hedging schemes for European options when the asset return process follows an asymmetric non-affine GARCH model driven by Gaussian innovations. More specifically, using a lattice approximation for the underlying, we construct locally...