Hello,
I have to compare between Duan's option pricing model (among others) and the market prices. I have to estimate the GARCH parameters from the past returns and then use Monte Carlo simulation to obtain one option price, I guess I can't compare using only one price, but by using RMSE (for example). So :
When using the MC simulation, can I use the discount rate to obtain a chain of theorical option prices and then calculate the errors until expiry? If no, how the comparison must be done ?
Regards
I have to compare between Duan's option pricing model (among others) and the market prices. I have to estimate the GARCH parameters from the past returns and then use Monte Carlo simulation to obtain one option price, I guess I can't compare using only one price, but by using RMSE (for example). So :
When using the MC simulation, can I use the discount rate to obtain a chain of theorical option prices and then calculate the errors until expiry? If no, how the comparison must be done ?
Regards
