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Article: Pricing exotic options under a high-order markovian regime switching model
Title | Pricing exotic options under a high-order markovian regime switching model |
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Authors | |
Issue Date | 2007 |
Citation | Journal Of Applied Mathematics And Decision Sciences, 2007, v. 2007, article no. 18014 How to Cite? |
Abstract | We 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 Identifier | http://hdl.handle.net/10722/156201 |
ISSN | |
References |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Ching, WK | en_US |
dc.contributor.author | Siu, TK | en_US |
dc.contributor.author | Li, LM | en_US |
dc.date.accessioned | 2012-08-08T08:40:49Z | - |
dc.date.available | 2012-08-08T08:40:49Z | - |
dc.date.issued | 2007 | en_US |
dc.identifier.citation | Journal Of Applied Mathematics And Decision Sciences, 2007, v. 2007, article no. 18014 | en_US |
dc.identifier.issn | 1173-9126 | en_US |
dc.identifier.uri | http://hdl.handle.net/10722/156201 | - |
dc.description.abstract | We 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.language | eng | en_US |
dc.relation.ispartof | Journal of Applied Mathematics and Decision Sciences | en_US |
dc.rights | This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. | - |
dc.title | Pricing exotic options under a high-order markovian regime switching model | en_US |
dc.type | Article | en_US |
dc.identifier.email | Ching, WK:wching@hku.hk | en_US |
dc.identifier.authority | Ching, WK=rp00679 | en_US |
dc.description.nature | published_or_final_version | en_US |
dc.identifier.doi | 10.1155/2007/18014 | en_US |
dc.identifier.scopus | eid_2-s2.0-36849072742 | en_US |
dc.identifier.hkuros | 138468 | - |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-36849072742&selection=ref&src=s&origin=recordpage | en_US |
dc.identifier.volume | 2007 | en_US |
dc.identifier.spage | article no. 18014 | - |
dc.identifier.epage | article no. 18014 | - |
dc.identifier.scopusauthorid | Ching, WK=13310265500 | en_US |
dc.identifier.scopusauthorid | Siu, TK=8655758200 | en_US |
dc.identifier.scopusauthorid | Li, LM=35329863000 | en_US |
dc.identifier.issnl | 1173-9126 | - |