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Option Pricing in a Jump-Diffusion Model with Regime Switching

Yuen, Fei Lung, Yang, Hailiang (2009) Option Pricing in a Jump-Diffusion Model with Regime Switching. ASTIN Bulletin, 39 (2). pp. 515-539. ISSN 0515-0361. (doi:10.2143/AST.39.2.2044646) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:97113)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL:
https://doi.org/10.2143/AST.39.2.2044646

Abstract

Nowadays, the regime switching model has become a popular model in mathematical finance and actuarial science. The market is not complete when the model has regime switching. Thus, pricing the regime switching risk is an important issue. In Naik (1993), a jump diffusion model with two regimes is studied. In this paper, we extend the model of Naik (1993) to a multi-regime case. We present a trinomial tree method to price options in the extended model. Our results show that the trinomial tree method in this paper is an effective method; it is very fast and easy to implement. Compared with the existing methodologies, the proposed method has an obvious advantage when one needs to price exotic options and the number of regime states is large. Various numerical examples are presented to illustrate the ideas and methodologies.

Item Type: Article
DOI/Identification number: 10.2143/AST.39.2.2044646
Subjects: Q Science > QA Mathematics (inc Computing science)
Divisions: Divisions > Division of Computing, Engineering and Mathematical Sciences > School of Mathematics, Statistics and Actuarial Science
Depositing User: Kevin Yuen
Date Deposited: 28 Sep 2022 13:19 UTC
Last Modified: 29 Sep 2022 11:48 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/97113 (The current URI for this page, for reference purposes)

University of Kent Author Information

Yuen, Fei Lung.

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