Option Pricing Under Jump-Diffusion Processes with Regime Switching Academic Article

abstract

  • © 2015, Springer Science+Business Media New York.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.

publication date

  • 2016/9/1

keywords

  • Analogue
  • Business
  • Equivalent Martingale Measure
  • Explicit Formula
  • Incomplete Markets
  • Jump-diffusion Process
  • Market Model
  • Markov Process
  • Model-based
  • Option Pricing
  • Regime Switching

International Standard Serial Number (ISSN)

  • 1387-5841

number of pages

  • 17

start page

  • 829

end page

  • 845