EconPapers    
Economics at your fingertips  
 

NUMERICAL SOLUTIONS OF A MARKOV-SWITCHING ONE-FACTOR VOLATILITY MODEL WITH NONGLOBALLY LIPSCHITZ CONTINUOUS COEFFICIENTS

Emmanuel Coffie ()
Additional contact information
Emmanuel Coffie: Institute for Financial and Actuarial Mathematics, University of Liverpool, Liverpool L69 7ZL, UK

International Journal of Theoretical and Applied Finance (IJTAF), 2024, vol. 27, issue 07n08, 1-32

Abstract: We extend the one-factor stochastic volatility model to incorporate super-linearly growing coefficient terms with a Markov-switching framework. Since the proposed model is intractable analytically, we develop various mathematical techniques to investigate the convergence in probability of the numerical solutions to the true solution under the local Lipschitz condition. Finally, we perform simulation examples to demonstrate the convergence result and justify the result for the Monte Carlo evaluation of some option contracts written on an underlying interest rate whose prices are governed by this model.

Keywords: Stochastic volatility model; Markov-switching; truncated EM method; convergence in probability; options; Monte Carlo method (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024925500013
Access to full text is restricted to subscribers

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:wsi:ijtafx:v:27:y:2024:i:07n08:n:s0219024925500013

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024925500013

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2025-05-17
Handle: RePEc:wsi:ijtafx:v:27:y:2024:i:07n08:n:s0219024925500013