A new exact solution for pricing European options in a two-state regime-switching economy

DOI10.1016/j.camwa.2012.08.005zbMath1268.91170OpenAlexW2016426644MaRDI QIDQ356242

Song-Ping Zhu, Xiaoping Lu, Alexander Badran

Publication date: 25 July 2013

Published in: Computers \& Mathematics with Applications (Search for Journal in Brave)

Full work available at URL: https://doi.org/10.1016/j.camwa.2012.08.005

zbMATH Keywords

Fourier transformregime switchingBlack-Scholes modelEuropean optionsFourier inversion

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91)

Related Items (24)

Saddlepoint approximations to option price in a regime-switching model ⋮ PRICING FORMULA FOR EXCHANGE OPTION BASED ON STOCHASTIC DELAY DIFFERENTIAL EQUATION WITH JUMPS ⋮ How should a local regime-switching model be calibrated? ⋮ An Exact Formula for Pricing American Exchange Options with Regime Switching ⋮ A semi-analytic valuation of American options under a two-state regime-switching economy ⋮ Efficient hedging currency options in fractional Brownian motion model with jumps ⋮ A robust numerical solution to a time-fractional Black-Scholes equation ⋮ Stable reconstruction of the volatility in a regime-switching local-volatility model ⋮ Numerical solution of generalized Black-Scholes model ⋮ An integral equation approach for pricing American put options under regime-switching model ⋮ Pricing European options under stochastic looping contagion risk model ⋮ A regime switching fractional Black-Scholes model and European option pricing ⋮ Numerical Identification of Time-Dependent Volatility in European Options with Two-Stage Regime-Switching ⋮ PRICING EUROPEAN OPTIONS ON REGIME-SWITCHING ASSETS: A COMPARATIVE STUDY OF MONTE CARLO AND FINITE-DIFFERENCE APPROACHES ⋮ Differential quadrature parallel algorithms for solving systems of convection-diffusion and reaction models ⋮ Multivariate European option pricing in a Markov-modulated Lévy framework ⋮ AN ANALYTICAL APPROXIMATION FORMULA FOR THE PRICING OF CREDIT DEFAULT SWAPS WITH REGIME SWITCHING ⋮ FINITE MATURITY AMERICAN-STYLE STOCK LOANS WITH REGIME-SWITCHING VOLATILITY ⋮ Convergence rate of regime-switching trees ⋮ Nonlinear PDE model for European options with transaction costs under Heston stochastic volatility ⋮ Second-order lattice Boltzmann methods for PDEs of Asian option pricing with regime switching ⋮ Asian option as a fixed-point ⋮ An exact and explicit formula for pricing lookback options with regime switching ⋮ A deposit insurance pricing with a multi-state regime-switching volatility

Cites Work

• Analysis of time series subject to changes in regime
• Alternative models for stock price dynamics.
• A Simple Model for Option Pricing with Jumping Stochastic Volatility
• AMERICAN OPTIONS WITH REGIME SWITCHING
• A NEW ANALYTICAL APPROXIMATION FORMULA FOR THE OPTIMAL EXERCISE BOUNDARY OF AMERICAN PUT OPTIONS
• A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle
• Information and option pricings
• An Algorithm for the Machine Calculation of Complex Fourier Series
• A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options
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