In this paper, we modify Duan’s (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option-pricing models. In our mLRNVR, the conditional variances under two measures are designed to be different and the variance process is more persistent in the risk-neutral measure than...

COVID-19 pandemic is an extreme event that created a turmoil in stock markets around the world. This unexpected circumstance poses a critical question whether the prevailing models can help predict the plummets of indices, hence the returns. In this study, we model the stock returns using...

In this paper, we investigate a two-factor VIX model with infinite-activity jumps, which is a more realistic way to reduce errors in pricing VIX derivatives, compared with Mencía and Sentana (2013). Our two-factor model features central tendency, stochastic volatility and infinite-activity pure...