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.

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

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.

scholarly journals VARIANCE AND VOLATILITY SWAPS UNDER A TWO-FACTOR STOCHASTIC VOLATILITY MODEL WITH REGIME SWITCHING

2019 ◽  
Vol 22 (04) ◽  
pp. 1950009
Author(s):  
XIN-JIANG HE ◽  
SONG-PING ZHU
Keyword(s):  
Markov Chain ◽  
Characteristic Function ◽  
Stochastic Volatility ◽  
Regime Switching ◽  
Numerical Experiments ◽  
Stochastic Volatility Model ◽  
Heston Model ◽  
Volatility Model ◽  
Significant Difference ◽  
Cir Process

In this paper, the pricing problem of variance and volatility swaps is discussed under a two-factor stochastic volatility model. This model can be treated as a two-factor Heston model with one factor following the CIR process and another characterized by a Markov chain, with the motivation originating from the popularity of the Heston model and the strong evidence of the existence of regime switching in real markets. Based on the derived forward characteristic function of the underlying price, analytical pricing formulae for variance and volatility swaps are presented, and numerical experiments are also conducted to compare swap prices calculated through our formulae and those obtained under the Heston model to show whether the introduction of the regime switching factor would lead to any significant difference.

scholarly journals A CONDITIONAL MARKOV REGIME SWITCHING MODEL TO STUDY MARGINS: APPLICATION TO THE FRENCH FUEL RETAIL MARKETS

2015 ◽  
Vol 21 (2) ◽  
Author(s):  
RAPHAËL HOMAYOUN BOROUMAND ◽  
STÉPHANE GOUTTE ◽  
SIMON PORCHER ◽  
THOMAS PORCHER
Keyword(s):  
Markov Chain ◽  
Market Structure ◽  
Regime Switching ◽  
Markov Regime Switching ◽  
Regime Switching Model ◽  
Switching Model ◽  
The Standard Model ◽  
High Volatility ◽  
Volatility Regimes ◽  
Markov Regime Switching Model

<p class="ESRBODY">This paper uses a regime-switching model that is built on mean-reverting and local volatility processes combined with two Markov regime-switching processes to understand the market structure of the French fuel retail market over the period 1990-2013. The volatility structure of these models depends on a first exogenous Markov chain, whereas the drift structure depends on a conditional Markov chain with respect to the first one. Our model allows us to identify mean reverting and switches in the volatility regimes of the margins. In the standard model of cartel coordination, volatility can increase competition. We find that cartelization is even stronger in phases of high volatility. Our best explanation is that consumers consider volatility in prices to be a change in market structure and are therefore less likely to search for lower-priced retailers, thus increasing the market power of the oligopoly. Our findings provide a better understanding of the behavior of oligopolies.</p>

scholarly journals Regime specific spillover across cryptocurrencies and the role of COVID-19

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Syed Jawad Hussain Shahzad ◽  
Elie Bouri ◽  
Sang Hoon Kang ◽  
Tareq Saeed
Keyword(s):  
Network Analysis ◽  
Regime Switching ◽  
Exogenous Variables ◽  
Vector Autoregressive ◽  
Daily Return ◽  
High Volatility ◽  
Pricing Factors ◽  
Volatility Regimes ◽  
Do So

AbstractThe aim of this study is to examine the daily return spillover among 18 cryptocurrencies under low and high volatility regimes, while considering three pricing factors and the effect of the COVID-19 outbreak. To do so, we apply a Markov regime-switching (MS) vector autoregressive with exogenous variables (VARX) model to a daily dataset from 25-July-2016 to 1-April-2020. The results indicate various patterns of spillover in high and low volatility regimes, especially during the COVID-19 outbreak. The total spillover index varies with time and abruptly intensifies following the outbreak of COVID-19, especially in the high volatility regime. Notably, the network analysis reveals further evidence of much higher spillovers in the high volatility regime during the COVID-19 outbreak, which is consistent with the notion of contagion during stress periods.

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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