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Article: Pricing exotic options under a high-order markovian regime switching model

TitlePricing exotic options under a high-order markovian regime switching model
Authors
Issue Date2007
Citation
Journal Of Applied Mathematics And Decision Sciences, 2007, v. 2007, article no. 18014 How to Cite?
AbstractWe consider the pricing of exotic options when the price dynamics of the underlying risky asset are governed by a discrete-time Markovian regime-switching process driven by an observable, high-order Markov model (HOMM). We assume that the market interest rate, the drift, and the volatility of the underlying risky asset's return switch over time according to the states of the HOMM, which are interpreted as the states of an economy. We will then employ the well-known tool in actuarial science, namely, the Esscher transform to determine an equivalent martingale measure for option valuation. Moreover, we will also investigate the impact of the high-order effect of the states of the economy on the prices of some path-dependent exotic options, such as Asian options, lookback options, and barrier options.
Persistent Identifierhttp://hdl.handle.net/10722/156201
ISSN
2012 SCImago Journal Rankings: 0.287
References

 

DC FieldValueLanguage
dc.contributor.authorChing, WKen_US
dc.contributor.authorSiu, TKen_US
dc.contributor.authorLi, LMen_US
dc.date.accessioned2012-08-08T08:40:49Z-
dc.date.available2012-08-08T08:40:49Z-
dc.date.issued2007en_US
dc.identifier.citationJournal Of Applied Mathematics And Decision Sciences, 2007, v. 2007, article no. 18014en_US
dc.identifier.issn1173-9126en_US
dc.identifier.urihttp://hdl.handle.net/10722/156201-
dc.description.abstractWe consider the pricing of exotic options when the price dynamics of the underlying risky asset are governed by a discrete-time Markovian regime-switching process driven by an observable, high-order Markov model (HOMM). We assume that the market interest rate, the drift, and the volatility of the underlying risky asset's return switch over time according to the states of the HOMM, which are interpreted as the states of an economy. We will then employ the well-known tool in actuarial science, namely, the Esscher transform to determine an equivalent martingale measure for option valuation. Moreover, we will also investigate the impact of the high-order effect of the states of the economy on the prices of some path-dependent exotic options, such as Asian options, lookback options, and barrier options.en_US
dc.languageengen_US
dc.relation.ispartofJournal of Applied Mathematics and Decision Sciencesen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titlePricing exotic options under a high-order markovian regime switching modelen_US
dc.typeArticleen_US
dc.identifier.emailChing, WK:wching@hku.hken_US
dc.identifier.authorityChing, WK=rp00679en_US
dc.description.naturepublished_or_final_versionen_US
dc.identifier.doi10.1155/2007/18014en_US
dc.identifier.scopuseid_2-s2.0-36849072742en_US
dc.identifier.hkuros138468-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-36849072742&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume2007en_US
dc.identifier.spagearticle no. 18014-
dc.identifier.epagearticle no. 18014-
dc.identifier.scopusauthoridChing, WK=13310265500en_US
dc.identifier.scopusauthoridSiu, TK=8655758200en_US
dc.identifier.scopusauthoridLi, LM=35329863000en_US

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