Pricing SPX and DIX by HAR models
Yow-Jen Jou , Chih-Wei Wang , Wan-Chien Chiu

Abstract:
Previous studies have documented that, with use of high-frequency data, the Heteroskedasticity AR (HAR-RV) model performs better than other models in fitting financial return volatility measurement and has a more accurate forecasting ability. However, to our knowledge, no previous studies have investigated whether HAR-RV model can improve option pricing performance in financial markets. This study compares HAR-RV model and EGARCH model in terms of option pricing performance. As expected, the results of this study demonstrate that HAR-RV model is more accurate than EGARCH model in terms of S&P500 Index options (SPX) and Dow Jones Index options (DIX).

Keywords:
high-frequency data, HAR-RV model, EGARCH model, option pricing performance, SPX, DIX, moneyness effects, Heteroskedasticity AR, financial returns, volatility measurement, forecasting