Option Pricing Under Jump-Diffusion Processes with Regime Switching

Nikita Ratanov

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We study an incomplete market model, based on jump-diffusion processes with parameters that are switched at random times. The set of equivalent martingale measures is determined. An analogue of the fundamental equation for the option price is derived. In the case of the two-state hidden Markov process we obtain explicit formulae for the option prices. Furthermore, we numerically compare the results corresponding to different equivalent martingale measures.

Original languageEnglish (US)
Pages (from-to)829-845
Number of pages17
JournalMethodology and Computing in Applied Probability
Volume18
Issue number3
DOIs
StatePublished - Sep 1 2016

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Mathematics(all)

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