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Article: Pricing options and equity-Indexed annuities in a Regime-switching Model by Trinomial Tree Method

TitlePricing options and equity-Indexed annuities in a Regime-switching Model by Trinomial Tree Method
Authors
KeywordsOption pricing
Regime switching model
Trinomial tree method
Equity-Indexed Annuity
Path dependent options
Issue Date2011
PublisherInternational Institute of Informatics and Cybernetics. The Journal's web site is located at http://www.iiisci.org/Journal/SCI/Home.asp
Citation
Journal of Systemics, Cybernetics and Informatics, 2011, v. 9 n. 6, p. 81-86 How to Cite?
AbstractIn this paper we summarize the main idea and results of Yuen and Yang (2009, 2010a, 2010b) and provide some results on pricing of Parisian options under the Markov regime-switching model (MRSM). The MRSM allows the parameters of the market model depending on a Markovian process, and the model can reflect the information of the market environment which cannot be modeled solely by linear Gaussian process. However, when the parameters of the stock price model are not constant but governed by a Markovian process, the pricing of the options becomes complex. We present a fast and simple trinomial tree model to price options in MRSM. In recent years, the pricing of modern insurance products, such as Equity-Indexed annuity (EIA) and variable annuities (VAs), has become a popular topic. We show here that our trinomial tree model can been used to price EIA with strong path dependent exotic options in the regime switching model.
Persistent Identifierhttp://hdl.handle.net/10722/159895
ISSN

 

DC FieldValueLanguage
dc.contributor.authorYuen, FLen_US
dc.contributor.authorYang, Hen_US
dc.date.accessioned2012-08-16T05:59:07Z-
dc.date.available2012-08-16T05:59:07Z-
dc.date.issued2011en_US
dc.identifier.citationJournal of Systemics, Cybernetics and Informatics, 2011, v. 9 n. 6, p. 81-86en_US
dc.identifier.issn1690-4532-
dc.identifier.urihttp://hdl.handle.net/10722/159895-
dc.description.abstractIn this paper we summarize the main idea and results of Yuen and Yang (2009, 2010a, 2010b) and provide some results on pricing of Parisian options under the Markov regime-switching model (MRSM). The MRSM allows the parameters of the market model depending on a Markovian process, and the model can reflect the information of the market environment which cannot be modeled solely by linear Gaussian process. However, when the parameters of the stock price model are not constant but governed by a Markovian process, the pricing of the options becomes complex. We present a fast and simple trinomial tree model to price options in MRSM. In recent years, the pricing of modern insurance products, such as Equity-Indexed annuity (EIA) and variable annuities (VAs), has become a popular topic. We show here that our trinomial tree model can been used to price EIA with strong path dependent exotic options in the regime switching model.-
dc.languageengen_US
dc.publisherInternational Institute of Informatics and Cybernetics. The Journal's web site is located at http://www.iiisci.org/Journal/SCI/Home.aspen_US
dc.relation.ispartofJournal of Systemics, Cybernetics and Informaticsen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectOption pricing-
dc.subjectRegime switching model-
dc.subjectTrinomial tree method-
dc.subjectEquity-Indexed Annuity-
dc.subjectPath dependent options-
dc.titlePricing options and equity-Indexed annuities in a Regime-switching Model by Trinomial Tree Methoden_US
dc.typeArticleen_US
dc.identifier.emailYuen, FL: h0333977@hkusua.hku.hk, F.Yuen@hw.ac.uken_US
dc.identifier.emailYang, H: hlyang@hkusua.hku.hk-
dc.identifier.authorityYang, H=rp00826en_US
dc.description.naturepublished_or_final_version-
dc.identifier.hkuros202428en_US
dc.identifier.volume9en_US
dc.identifier.issue6-
dc.identifier.spage81en_US
dc.identifier.epage86en_US
dc.publisher.placeUnited States-

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