Exotic Options

Universitext - Statistics of Financial Markets ◽

10.1007/978-3-030-13751-9_9 ◽

2019 ◽

pp. 145-157

Author(s):

Jürgen Franke ◽

Wolfgang Karl Härdle ◽

Christian Matthias Hafner

Keyword(s):

Exotic Options

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Exotic options: Boundary analyses

Journal of Derivatives & Hedge Funds ◽

10.1057/jdhf.2009.5 ◽

2009 ◽

Vol 15 (2) ◽

pp. 149-157 ◽

Cited By ~ 2

Author(s):

George L Ye

Keyword(s):

Exotic Options

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Option Pricing in a Jump-Diffusion Model with Regime Switching

Astin Bulletin ◽

10.2143/ast.39.2.2044646 ◽

2009 ◽

Vol 39 (2) ◽

pp. 515-539 ◽

Cited By ~ 31

Author(s):

Fei Lung Yuen ◽

Hailiang Yang

Keyword(s):

Diffusion Model ◽

Regime Switching ◽

Jump Diffusion ◽

Mathematical Finance ◽

Extended Model ◽

Exotic Options ◽

Switching Model ◽

Jump Diffusion Model ◽

Trinomial Tree ◽

Tree Method

AbstractNowadays, the regime switching model has become a popular model in mathematical finance and actuarial science. The market is not complete when the model has regime switching. Thus, pricing the regime switching risk is an important issue. In Naik (1993), a jump diffusion model with two regimes is studied. In this paper, we extend the model of Naik (1993) to a multi-regime case. We present a trinomial tree method to price options in the extended model. Our results show that the trinomial tree method in this paper is an effective method; it is very fast and easy to implement. Compared with the existing methodologies, the proposed method has an obvious advantage when one needs to price exotic options and the number of regime states is large. Various numerical examples are presented to illustrate the ideas and methodologies.

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