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 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...

In this paper we study a conditional version of the Wang transform in the context of discrete GARCH models and their diffusion limits. Our first contribution shows that the conditional Wang transform and Duan's generalized local risk-neutral valuation relationship based on equilibrium...

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 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...

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...

In this article, we investigate the pricing and convergence of general non-affine non-Gaussian GARCH-based variance swap prices. Explicit solutions for fair strike prices under two different sampling schemes are derived using the extended Girsanov principle as our pricing kernel candidate....