European Option Pricing in Regime Switching Framework via Physics-Informed Residual Learning

Naman Krishna Pande, Puneet Pasricha, Arun Kumar and Arvind Kumar Gupta

Papers from arXiv.org

Abstract: In this article, we employ physics-informed residual learning (PIRL) and propose a pricing method for European options under a regime-switching framework, where closed-form solutions are not available. We demonstrate that the proposed approach serves an efficient alternative to competing pricing techniques for regime-switching models in the literature. Specifically, we demonstrate that PIRLs eliminate the need for retraining and become nearly instantaneous once trained, thus, offering an efficient and flexible tool for pricing options across a broad range of specifications and parameters.

Date: 2024-10
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