scholarly journals A new exact solution for pricing European options in a two-state regime-switching economy

2012 ◽  
Vol 64 (8) ◽  
pp. 2744-2755 ◽  
Author(s):  
Song-Ping Zhu ◽  
Alexander Badran ◽  
Xiaoping Lu
Keyword(s):  
Exact Solution ◽  
Regime Switching ◽  
European Options ◽  
State Regime

scholarly journals An Analytic Approach for Pricing American Options with Regime Switching

2021 ◽  
Vol 14 (5) ◽  
pp. 188
Author(s):  
Leunglung Chan ◽  
Song-Ping Zhu
Keyword(s):  
Regime Switching ◽  
American Options ◽  
Option Price ◽  
Switching Model ◽  
Homotopy Analysis ◽  
State Regime ◽  
Markov Modulated ◽  
Appreciation Rate ◽  
The Interest Rate ◽  
Hidden States

This paper investigates the American option price in a two-state regime-switching model. The dynamics of underlying are driven by a Markov-modulated Geometric Wiener process. That means the interest rate, the appreciation rate, and the volatility of underlying rely on hidden states of the economy which can be interpreted in terms of Markov chains. By means of the homotopy analysis method, an explicit formula for pricing two-state regime-switching American options is presented.

Finite maturity American-style stock loans with regime-switching volatility

2021 ◽  
Vol 63 ◽  
pp. 163-177
Author(s):  
Xiaoping Lu ◽  
Endah R. M. Putri
Keyword(s):  
Regime Switching ◽  
Numerical Experiments ◽  
State Regime ◽  
Volatility Regimes ◽  
American Style

We study finite maturity American-style stock loans under a two-state regime-switching economy. We present a thorough semi-analytic discussion of the optimal redeeming prices, the values and the fair service fees of the stock loans, under the assumption that the volatility of the underlying is in a state of uncertainty. Numerical experiments are carried out to show the effects of the volatility regimes and other loan parameters. doi:10.1017/S1446181121000250

FINITE MATURITY AMERICAN-STYLE STOCK LOANS WITH REGIME-SWITCHING VOLATILITY

2021 ◽  
pp. 1-15
Author(s):  
XIAOPING LU ◽  
ENDAH R. M. PUTRI
Keyword(s):  
Regime Switching ◽  
Numerical Experiments ◽  
State Regime ◽  
Volatility Regimes ◽  
American Style

Abstract We study finite maturity American-style stock loans under a two-state regime-switching economy. We present a thorough semi-analytic discussion of the optimal redeeming prices, the values and the fair service fees of the stock loans, under the assumption that the volatility of the underlying is in a state of uncertainty. Numerical experiments are carried out to show the effects of the volatility regimes and other loan parameters.

NUMERICAL SCHEMES FOR OPTION PRICING IN REGIME-SWITCHING JUMP DIFFUSION MODELS

2013 ◽  
Vol 16 (08) ◽  
pp. 1350046 ◽  
Author(s):  
IONUT FLORESCU ◽  
RUIHUA LIU ◽  
MARIA CRISTINA MARIANI ◽  
GRANVILLE SEWELL
Keyword(s):  
Complex System ◽  
Regime Switching ◽  
Traditional Approach ◽  
Parabolic Type ◽  
Jump Diffusion ◽  
European Options ◽  
Jump Diffusion Model ◽  
Proof Of Convergence ◽  
New Algorithms ◽  
Signal Variability

In this paper, we present algorithms to solve a complex system of partial integro-differential equations (PIDE's) of parabolic type. The system is motivated by applications in finance where the solution of the system gives the price of European options in a regime-switching jump diffusion model. The new algorithms are based on theoretical analysis in Florescu et al. (2012) where the proof of convergence of the algorithms is carried out. The problems are also solved using a more traditional approach, where the integral terms (but not the derivative terms) are treated explicitly. Another contribution of this work details a novel type of jump distribution. Empirical evidence suggests that this type of distribution may be more appropriate to model jumps as it makes them more clearly distinguishable from the signal variability.

scholarly journals An exact and explicit formula for pricing lookback options with regime switching

2021 ◽  
Vol 0 (0) ◽  
pp. 0
Author(s):  
Leunglung Chan ◽  
Song-Ping Zhu
Keyword(s):  
Regime Switching ◽  
Closed Form Solution ◽  
Form Solution ◽  
Risky Asset ◽  
Chain Process ◽  
Switching Model ◽  
Lookback Options ◽  
State Regime ◽  
Markov Modulated ◽  
Appreciation Rate

<p style='text-indent:20px;'>This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geometric Brownian motion; that is, the appreciation rate and the volatility of the underlying risky asset depend on states of the economy described by a continuous-time Markov chain process. We derive an exact, explicit and closed-form solution for European-style lookback options in a two-state regime switching model.</p>

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