Executive stock option pricing based on volatility estimated by SV-GED model: Evidence from Shanghai and Shenzhen 300 Index

Abstract

This paper develops a executive stock option pricing model based on the volatility estimated by SV-GED model, considering both the features of the volatility of stock return and the exceptional volatility of stock price which in exercise date, estimates the parameters of SV-GED model using Markov Chain Monte Carlo method, , and compare the executive stock option prices calculated by the option pricing model based on volatility estimated by SV-GED model and Black-Scholes option pricing model, based on Shanghai and Shenzhen 300 Index. It shows that SV-GED model has greater veracity in describing the volatility of financial asset returns; there are differences between the executive stock option value estimated by stock option pricing model based on volatility estimated by SV-GED model and that computed by B-S option pricing model, and the differences vary with the discrepancy between the underlying stock price and strike price.