Option pricing on foreign exchange in a Markov-modulated, incomplete-market economy

2016 ◽  
Vol 16 ◽  
pp. 208-219 ◽  
Author(s):  
Yu-Min Lian ◽  
Jun-Home Chen ◽  
Szu-Lang Liao
Keyword(s):  
Option Pricing ◽  
Market Economy ◽  
Foreign Exchange ◽  
Incomplete Market ◽  
Markov Modulated

scholarly journals Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method

2013 ◽  
Vol 2013 ◽  
pp. 1-9 ◽  
Author(s):  
Xinfeng Ruan ◽  
Wenli Zhu ◽  
Shuang Li ◽  
Jiexiang Huang
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Option Pricing ◽  
Difference Method ◽  
Incomplete Market ◽  
Martingale Measure ◽  
Risk Minimization ◽  
European Option ◽  
The Finite Difference Method ◽  
Nikodym Derivative

We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.

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