MCMC GARCH Option Pricing Model

GARCH model has been widely used to price option. This paper suggests Markov Chain Monte Carlo method combining with GARCH option pricing model to price European-style option, named MCMC-GARCH model. MCMC method use information contained in the option prices and proposes prior distribution to price option. This method can avoid non-directional optimization, is an efficient Bayesian estimation. For a data set of 4432 daily S&P100 index European-style option prices, MCMC method is an efficient pricing model.The first part introduces the background of this paper and why this paper written. Second part introduces the MCMC method and GARCH model, these are basis of this paper, and this paper use least square Monte Carlo method to extend the model to price American style option. The empirical study is third part, in this part, Data and random number generating is be described. Conclusion is last part.