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Article: Option pricing in a jump-diffusion model with regime switching

TitleOption pricing in a jump-diffusion model with regime switching
Authors
KeywordsJump-diffusion model
Option pricing
Price of regime switching risk
Regime switching
Trinomial tree method
Issue Date2009
PublisherPeeters 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?
AbstractNowadays, 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 Identifierhttp://hdl.handle.net/10722/125397
ISSN
2023 Impact Factor: 1.7
2023 SCImago Journal Rankings: 0.979
ISI Accession Number ID
Funding AgencyGrant Number
Research Grants Council of the Hong Kong Special Administrative Region, ChinaHKU 706209P
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 FieldValueLanguage
dc.contributor.authorYuen, FLen_HK
dc.contributor.authorYang, Hen_HK
dc.date.accessioned2010-10-31T11:29:05Z-
dc.date.available2010-10-31T11:29:05Z-
dc.date.issued2009en_HK
dc.identifier.citationAstin Bulletin, 2009, v. 39 n. 2, p. 515-539en_HK
dc.identifier.issn0515-0361en_HK
dc.identifier.urihttp://hdl.handle.net/10722/125397-
dc.description.abstractNowadays, 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.languageengen_HK
dc.publisherPeeters Publishers. The Journal's web site is located at http://poj.peeters-leuven.be/content.php?url=journal&journal_code=ASTen_HK
dc.relation.ispartofASTIN Bulletinen_HK
dc.subjectJump-diffusion modelen_HK
dc.subjectOption pricingen_HK
dc.subjectPrice of regime switching risken_HK
dc.subjectRegime switchingen_HK
dc.subjectTrinomial tree methoden_HK
dc.titleOption pricing in a jump-diffusion model with regime switchingen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://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+switchingen_HK
dc.identifier.emailYang, H: hlyang@hku.hken_HK
dc.identifier.authorityYang, H=rp00826en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.2143/AST.39.2.2044646en_HK
dc.identifier.scopuseid_2-s2.0-72949090375en_HK
dc.identifier.hkuros173049en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-72949090375&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume39en_HK
dc.identifier.issue2en_HK
dc.identifier.spage515en_HK
dc.identifier.epage539en_HK
dc.identifier.isiWOS:000272641700007-
dc.publisher.placeBelgiumen_HK
dc.relation.projectOption Pricing and ALM in Regime Switching Models-
dc.identifier.scopusauthoridYuen, FL=35073271000en_HK
dc.identifier.scopusauthoridYang, H=7406559537en_HK
dc.identifier.issnl0515-0361-

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