The pricing and hedging of an attainable claim in a hybrid Black-Scholes model under regime switching (Q2065427): Difference between revisions

Summary: This article formulates and dissects a Black-Scholes model with regime switching that can be used to describe the performance of a complete market. An explicit integrand formula \(\phi(t, \omega)\) is obtained when the \(T\)-claim \(F(\omega)\) is given for an attainable claim in this complete market. In addition, some perfect results are presented on how to hedge an attainable claim for this Black-Scholes model, and the price \(p\) of the European call and the self-financing portfolio \(\theta(t)=(\theta_0(t), \theta_1 (t))\) are given explicitly. Finally, some concluding remarks are provided to illustrate the theoretical results.