Pricing Hang Seng Index options around the Asian financial crisis - A GARCH approach

This paper investigates how well the Hang Seng Index options, the most impo rtant class of option contracts traded in Hong Kong, are priced using the G ARCH approach. We calibrated the GARCH parameters using the call and put op tion data and used them to price options in the subsequent weeks. We found the GARCH model performs very well in comparison with the Black-Scholes mod el even after allowing for a smile/smirk adjustment. Its superior performan ce was also evident both before and during the recent Asian financial turmo il. (C) 2001 Elsevier Science B.V. All rights reserved.