American option prices in a Markov chain market model

John van der Hoek and Robert J. Elliott

Applied Stochastic Models in Business and Industry, 2012, vol. 28, issue 1, 35-59

Abstract: This paper is a sequel to our previous paper ‘A New Paradigm in Asset Pricing’ in which we construct a model for asset pricing in a world where the randomness is modeled by a Markov chain. In this paper we develop a theory of optimal stopping and related variational inequalities for American options in this model. A version of Saigal's Lemma is established and numerical results obtained. Copyright © 2011 John Wiley & Sons, Ltd.

Date: 2012
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https://doi.org/10.1002/asmb.893

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:28:y:2012:i:1:p:35-59

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