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Article: Pricing Vulnerable Options Under a Markov-modulated Jump-Diffusion Model with Fire Sales

TitlePricing Vulnerable Options Under a Markov-modulated Jump-Diffusion Model with Fire Sales
Authors
Yang, QChing, WKHe, WSiu, T
KeywordsVulnerable Option
Regime-Switching
Change Of Numéraire
Distressed Selling
Multinomial Approach
Issue Date2019
PublisherAmerican Institute of Mathematical Sciences. The Journal's web site is located at https://aimsciences.org/journals/home.jsp?journalID=5
Citation
Journal of Industrial and Management Optimization, 2019, v. 15 n. 1, p. 293-318 How to Cite?
DOI: http://dx.doi.org/10.3934/jimo.2018044
AbstractIn this paper, we consider the valuation of vulnerable options under a Markov-modulated jump-diffusion model, where the option writer's asset value is subject to price pressure from other financial institutions due to distressed selling. A change of numéraire technique, proposed by Geman et al. [14], is employed to obtain a semi-analytical pricing formula for an vulnerable European option in the presence of regime switching effect. The method is numerically implemented using the multinomial approach in Costabile et al. [6]. We study the impacts of distressed selling and regime switching on the European option prices via numerical experiments.
Persistent Identifierhttp://hdl.handle.net/10722/266095
ISSN
1547-5816
2021 Impact Factor: 1.411
2020 SCImago Journal Rankings: 0.325
ISI Accession Number ID
WOS:000450650500016

 

DC FieldValueLanguage
dc.contributor.authorYang, Q-
dc.contributor.authorChing, WK-
dc.contributor.authorHe, W-
dc.contributor.authorSiu, T-
dc.date.accessioned2018-12-17T02:16:46Z-
dc.date.available2018-12-17T02:16:46Z-
dc.date.issued2019-
dc.identifier.citationJournal of Industrial and Management Optimization, 2019, v. 15 n. 1, p. 293-318-
dc.identifier.issn1547-5816-
dc.identifier.urihttp://hdl.handle.net/10722/266095-
dc.description.abstractIn this paper, we consider the valuation of vulnerable options under a Markov-modulated jump-diffusion model, where the option writer's asset value is subject to price pressure from other financial institutions due to distressed selling. A change of numéraire technique, proposed by Geman et al. [14], is employed to obtain a semi-analytical pricing formula for an vulnerable European option in the presence of regime switching effect. The method is numerically implemented using the multinomial approach in Costabile et al. [6]. We study the impacts of distressed selling and regime switching on the European option prices via numerical experiments.-
dc.languageeng-
dc.publisherAmerican Institute of Mathematical Sciences. The Journal's web site is located at https://aimsciences.org/journals/home.jsp?journalID=5-
dc.relation.ispartofJournal of Industrial and Management Optimization-
dc.rightsJournal of Industrial and Management Optimization. Copyright © American Institute of Mathematical Sciences.-
dc.rightsThis is a pre-copy-editing, author-produced PDF of an article accepted for publication in [insert journal title] following peer review. The definitive publisher-authenticated version [insert complete citation information here] is available online at: xxxxxxx [insert URL that the author will receive upon publication here].-
dc.subjectVulnerable Option-
dc.subjectRegime-Switching-
dc.subjectChange Of Numéraire-
dc.subjectDistressed Selling-
dc.subjectMultinomial Approach-
dc.titlePricing Vulnerable Options Under a Markov-modulated Jump-Diffusion Model with Fire Sales-
dc.typeArticle-
dc.identifier.emailChing, WK: wching@hku.hk-
dc.identifier.authorityChing, WK=rp00679-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.3934/jimo.2018044-
dc.identifier.hkuros296265-
dc.identifier.volume15-
dc.identifier.issue1-
dc.identifier.spage293-
dc.identifier.epage318-
dc.identifier.isiWOS:000450650500016-
dc.publisher.placeUnited States-
dc.identifier.issnl1547-5816-

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