In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes we firstly outline the Fourier transform method both in log-price and log-strike to efficiently calculate the value of various types of options and as a concrete example of application, we present some numerical results within a two-state regime switching version of the Merton jump-diffusion model. Then we develop a closed-form solution to the problem of pricing a Forward Starting Option and use this result to approximate the value of such a derivative in a general stochastic volatility framework.

Ramponi, A. (2012). Fourier transform methods for regime-switching jump-diffusions and the pricing of forward starting options [Altro] [10.1142/S0219024912500379].

Fourier transform methods for regime-switching jump-diffusions and the pricing of forward starting options

RAMPONI, ALESSANDRO
2012-01-01

Abstract

In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes we firstly outline the Fourier transform method both in log-price and log-strike to efficiently calculate the value of various types of options and as a concrete example of application, we present some numerical results within a two-state regime switching version of the Merton jump-diffusion model. Then we develop a closed-form solution to the problem of pricing a Forward Starting Option and use this result to approximate the value of such a derivative in a general stochastic volatility framework.
Altro
2012
Rilevanza internazionale
Settore SECS-S/06 - METODI MATEMATICI DELL'ECONOMIA E DELLE SCIENZE ATTUARIALI E FINANZIARIE
English
regime switching jump-diffusion models; option pricing; Fourier transform methods; Forward Starting Options; stochastic volatility models
arXiv:1105.4567v1
Ramponi, A. (2012). Fourier transform methods for regime-switching jump-diffusions and the pricing of forward starting options [Altro] [10.1142/S0219024912500379].
Ramponi, A
Altro
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/15605
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