Good-deal bounds in a regime-switching diffusion market

Catherine Donnelly

Papers from arXiv.org

Abstract: We consider option pricing in a regime-switching diffusion market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal pricing bounds idea to obtain ranges for the price of a derivative. As an illustration, we calculate the good-deal pricing bounds for a European call option and we also examine the stability of these bounds when we change the generator of the Markov chain which drives the regime-switching. We find that the pricing bounds depend strongly on the choice of the generator.

Date: 2010-06, Revised 2010-11
References: Add references at CitEc
Citations:

Published in Applied Mathematical Finance (2011), 18(6), pp491-515

Downloads: (external link)
http://arxiv.org/pdf/1006.2273 Latest version (application/pdf)

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:arx:papers:1006.2273

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().