A Markov-modulated model for stocks paying discrete dividends

E. Sakkas and H. Le

Insurance: Mathematics and Economics, 2009, vol. 45, issue 1, pages 19-24

Abstract: We extend the model in [Korn, R., Rogers, L.C.G., 2005. Stock paying discrete dividends: modelling and option pricing. Journal of Derivatives 13, 44-49] for (discrete) dividend processes to incorporate the dependence of assets on the market mode or the state of the economy, where the latter is modeled by a hidden finite-state Markov chain. We then derive the resulting dynamics of the stock price and various option-pricing formulae. It turns out that the stock price jumps not only at the time of the dividend payment, but also when the underlying Markov chain jumps.

Keywords: Option; pricing; Hidden; Markov; chain; Dividend (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V8N ... cd1e5b3f30b709bf3412
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:insuma:v:45:y:2009:i:1:p:19-24

Access Statistics for this article

Insurance: Mathematics and Economics is edited by R. Kaas, H. U. Gerber, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Series data maintained by Heidi Boesdal ().