Abstract
We propose a class of discrete-time stochastic volatility models that, in a parsimonious way, captures the time-varying higher moments observed in financial series. Three desirable results are obtained. First, we have a recursive procedure for the log-price characteristic function which allows a semi-analytical formula for option prices as in Heston and Nandi [2000]. Second, we reproduce some features of the VIX Index. Finally, we derive a simple formula for the VIX index and use it for option pricing.
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