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Article: Option pricing in a jump-diffusion model with regime switching
| Title | Option pricing in a jump-diffusion model with regime switching | ||||
|---|---|---|---|---|---|
| Authors | |||||
| Keywords | Jump-diffusion model Option pricing Price of regime switching risk Regime switching Trinomial tree method | ||||
| Issue Date | 2009 | ||||
| Publisher | Peeters Publishers. The Journal's web site is located at http://poj.peeters-leuven.be/content.php?url=journal&journal_code=AST | ||||
| Citation | Astin Bulletin, 2009, v. 39 n. 2, p. 515-539 How to Cite? | ||||
| Abstract | Nowadays, 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. © 2009 by Astin Bulletin. All rights reserved. | ||||
| Persistent Identifier | http://hdl.handle.net/10722/125397 | ||||
| ISSN | 2021 Impact Factor: 2.545 2020 SCImago Journal Rankings: 1.113 | ||||
| ISI Accession Number ID |
Funding Information: The authors would like to thank the referee for helpful suggestions and comments. This research was supported by the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. HKU 706209P). | ||||
| References | |||||
| Grants |
| DC Field | Value | Language |
|---|---|---|
| dc.contributor.author | Yuen, FL | en_HK |
| dc.contributor.author | Yang, H | en_HK |
| dc.date.accessioned | 2010-10-31T11:29:05Z | - |
| dc.date.available | 2010-10-31T11:29:05Z | - |
| dc.date.issued | 2009 | en_HK |
| dc.identifier.citation | Astin Bulletin, 2009, v. 39 n. 2, p. 515-539 | en_HK |
| dc.identifier.issn | 0515-0361 | en_HK |
| dc.identifier.uri | http://hdl.handle.net/10722/125397 | - |
| dc.description.abstract | Nowadays, 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. © 2009 by Astin Bulletin. All rights reserved. | en_HK |
| dc.language | eng | en_HK |
| dc.publisher | Peeters Publishers. The Journal's web site is located at http://poj.peeters-leuven.be/content.php?url=journal&journal_code=AST | en_HK |
| dc.relation.ispartof | ASTIN Bulletin | en_HK |
| dc.subject | Jump-diffusion model | en_HK |
| dc.subject | Option pricing | en_HK |
| dc.subject | Price of regime switching risk | en_HK |
| dc.subject | Regime switching | en_HK |
| dc.subject | Trinomial tree method | en_HK |
| dc.title | Option pricing in a jump-diffusion model with regime switching | en_HK |
| dc.type | Article | en_HK |
| dc.identifier.openurl | http://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0515-0361&volume=39 &issue=2&spage=515&epage=539&date=2009&atitle=Option+pricing+in+a+jump-diffusion+model+with+regime+switching | en_HK |
| dc.identifier.email | Yang, H: hlyang@hku.hk | en_HK |
| dc.identifier.authority | Yang, H=rp00826 | en_HK |
| dc.description.nature | link_to_subscribed_fulltext | - |
| dc.identifier.doi | 10.2143/AST.39.2.2044646 | en_HK |
| dc.identifier.scopus | eid_2-s2.0-72949090375 | en_HK |
| dc.identifier.hkuros | 173049 | en_HK |
| dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-72949090375&selection=ref&src=s&origin=recordpage | en_HK |
| dc.identifier.volume | 39 | en_HK |
| dc.identifier.issue | 2 | en_HK |
| dc.identifier.spage | 515 | en_HK |
| dc.identifier.epage | 539 | en_HK |
| dc.identifier.isi | WOS:000272641700007 | - |
| dc.publisher.place | Belgium | en_HK |
| dc.relation.project | Option Pricing and ALM in Regime Switching Models | - |
| dc.identifier.scopusauthorid | Yuen, FL=35073271000 | en_HK |
| dc.identifier.scopusauthorid | Yang, H=7406559537 | en_HK |
| dc.identifier.issnl | 0515-0361 | - |