Option Pricing Under Jump-Diffusion Processes with Regime Switching

Nikita Ratanov ()

Methodology and Computing in Applied Probability, 2016, vol. 18, issue 3, 829-845

Abstract: Abstract We study an incomplete market model, based on jump-diffusion processes with parameters that are switched at random times. The set of equivalent martingale measures is determined. An analogue of the fundamental equation for the option price is derived. In the case of the two-state hidden Markov process we obtain explicit formulae for the option prices. Furthermore, we numerically compare the results corresponding to different equivalent martingale measures.

Keywords: Jump-telegraph process; Jump-diffusion process; Martingales; Relative entropy; Financial modelling; Option pricing; Esscher transform; 91B28; 60G44; 60J75; 60K99 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11009-015-9462-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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: https://EconPapers.repec.org/RePEc:spr:metcap:v:18:y:2016:i:3:d:10.1007_s11009-015-9462-7

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/11009

DOI: 10.1007/s11009-015-9462-7

Access Statistics for this article

Methodology and Computing in Applied Probability is currently edited by Joseph Glaz

More articles in Methodology and Computing in Applied Probability from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().