Ravanelli, ClaudiaBarone-Adesi, GiovanniRasmussen, Henrik2010-04-242010-04-242010-04-24200510.1016/j.csda.2004.05.014https://infoscience.epfl.ch/handle/20.500.14299/49661We derive analytically the first four conditional moments of the integrated variance implied by the GARCH diffusion process. From these moments we obtain an analytical closed-form approximation formula to price European options under the GARCH diffusion model. Using Monte Carlo simulations, we show that this approximation formula is accurate for a large set of reasonable parameters. Finally, we use the closed-form option pricing solution to shed light on the qualitative properties of implied volatility surfaces induced by GARCH diffusion models.text::journal::journal article::research article