Stock index volatility: evidence for stock index options in Taiwan

Abstract

This study applies artificial neural network to forecast Taiwan stock index option prices from 2005 to 2006. This study compares the option pricing model using three approaches to volatility: GARCH, EGARCH and GJR-GARCH, and compares estimators with three sets of criteria: RMSE, MAE and MAPE. The analytic results indicate that the asymmetric GARCH model is useful in predicting neural networks for stock index option prices.

Keywords and phrases:

• Volatility
• EGARCH
• GJR-GARCH
• stock index option
• asymmetry