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FAIR PRICE OF BIVARIATE OPTION USING HETEROSKEDASTICITY MODEL AND COPULAS IN THE BRAZILIAN STOCK MARKET
The univariate financial option pricing process generated and generates several works in the literature where there is criticism about the Black and Scholes model assumption that the asset-object volatility is considered constant over time. In addition, when financial options have more than one asset, care must be taken in the choice of their joint distribution, where the pioneer work considered the normal multivariate distribution, implying a linear correlation between the assets. Aiming to make the pricing process more realistic, this work aims to price bivariate financial options considering the Brazilian stock market through the DGARCH marginal process for asset-objects and copulas functions for the construction of the joint distribution. As a result, through tests and statistical criteria, a good adjustment of the marginal process and the joint distribution of the underlying assets was obtained, and in addition, the difference was obtained around 1% between the observed prices and the estimated considering the function payoff as the sum of the underlying assets. Another point to emphasize is the importance of choosing copula in the process of obtaining the fair price of the options. Finally, it justifies the importance of this work by the new approach of bivariate pricing and for being the first scientific application in the Brazilian stock market.
DGARCH; Copulas; Bivariate Option; Pricing.
Séries Temporais e Econometria
Lucas Pereira Lopes, Vicente Garibay Cancho, Francisco Louzada Neto