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In the current literature, the analytical tractability of discrete timeoption pricing models is guaranteed only for rather specific types of modelsand pricing kernels. We propose a very general and fully analytical optionpricing framework, encompassing a wide class of discrete time models featuringmultiple-component structure in both volatility and leverage, and a flexiblepricing kernel with multiple risk premia. Although the proposed framework isgeneral enough to include either GARCH-type volatility, Realized Volatility ora combination of the two, in this paper we focus on realized volatility optionpricing models by extending the Heterogeneous Autoregressive Gamma (HARG) modelof Corsi, Fusari, La Vecchia (2012) to incorporate heterogeneous leveragestructures with multiple components, while preserving closed-form solutions foroption prices. Applying our analytically tractable asymmetric HARG model to alarge sample of S&P 500 index options, we demonstrate its superior ability toprice out-of-the-money options compared to existing benchmarks.

Smile from the Past: A general option pricing framework with multiple volatility and leverage components