Good-deal bounds in a regime-switching diffusion market

DOI10.1080/1350486X.2011.591156zbMATH Open1239.91161arXiv1006.2273MaRDI QIDQ2889602FDOQ2889602

Authors: Catherine Donnelly 

Publication date: 8 June 2012

Published in: Applied Mathematical Finance (Search for Journal in Brave)

Abstract: We consider option pricing in a regime-switching diffusion market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal pricing bounds idea to obtain ranges for the price of a derivative. As an illustration, we calculate the good-deal pricing bounds for a European call option and we also examine the stability of these bounds when we change the generator of the Markov chain which drives the regime-switching. We find that the pricing bounds depend strongly on the choice of the generator.

Full work available at URL: https://arxiv.org/abs/1006.2273

Recommendations

• Risk Minimizing Option Pricing in a Regime Switching Market
• Towards a General Theory of Good-Deal Bounds*
• scientific article; zbMATH DE number 1897416
• Option pricing under jump-diffusion processes with regime switching
• Pricing exotic options under regime switching

zbMATH Keywords

regime-switchingoption pricingstabilitySharpe ratiopricing boundsgood-deal

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Cites Work

• A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle
• Arbitrage Theory in Continuous Time
• Title not available (Why is that?)
• A Regime-Switching Model of Long-Term Stock Returns
• Double martingales
• Pricing options in incomplete equity markets via the instantaneous Sharpe ratio
• Dynamic utility-based good deal bounds
• Generalised Sharpe Ratios and Asset Pricing in Incomplete Markets *
• Towards a General Theory of Good-Deal Bounds*

Cited In (3)

• Good-deal option price bounds for a non-traded event with stochastic return: a note
• Hedging under generalized good-deal bounds and model uncertainty
• Robust evaluation of SCR for participating life insurances under Solvency II

This page was built for publication: Good-deal bounds in a regime-switching diffusion market

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2889602)