Efficient pricing options under regime switching

Oleg Kudryavtsev (okudr@mail.ru)
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Oleg Kudryavtsev: MATHFI - Financial mathematics - Inria Paris-Rocquencourt - Inria - Institut National de Recherche en Informatique et en Automatique - ENPC - École nationale des ponts et chaussées - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12

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Abstract: In the paper, we propose two new efficient methods for pricing barrier option in wide classes of Lévy processes with/without regime switching. Both methods are based on the numerical Laplace transform inversion formulae and the Fast Wiener-Hopf factorization method developed in Kudryavtsev and Levendorski\v{i} (Finance Stoch. 13: 531--562, 2009). The first method uses the Gaver-Stehfest algorithm, the second one -- the Post-Widder formula. We prove the advantage of the new methods in terms of accuracy and convergence by using Monte-Carlo simulations.

Keywords: Lévy processes; barrier options; regime switching models; Wiener-Hopf factorization; Laplace transform; numerical methods; numerical transform inversion (search for similar items in EconPapers)
Date: 2010-01-26
New Economics Papers: this item is included in nep-cmp
Note: View the original document on HAL open archive server: https://inria.hal.science/inria-00450291v1
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Citations: View citations in EconPapers (2)

Published in [Research Report] RR-7184, INRIA. 2010, pp.35

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