A hidden Markov regime-switching model for option valuation

被引：23
|
作者：
Liew, Chuin Ching [1 ]
Siu, Tak Kuen [1 ]
机构：
[1] Macquarie Univ, Dept Actuarial Studies, Fac Business & Econ, Sydney, NSW 2109, Australia
来源：
INSURANCE MATHEMATICS & ECONOMICS | 2010年 / 47卷 / 03期
基金：
澳大利亚研究理事会;
关键词：
Option pricing; Regime switching; Hidden Markov model; Esscher transform; Extended Girsanov principle; Filters and predictors; INSURANCE; GUARANTEES; PARAMETERS; POLICIES; PRICES;
D O I：
10.1016/j.insmatheco.2010.08.003
中图分类号：
F [经济];
学科分类号：
02 ;
摘要：
We investigate two approaches namely the Esscher transform and the extended Girsanov s principle for option valuation in a discrete-time hidden Markov regime-switching Gaussian model The model s parameters including the interest rate the appreciation rate and the volatility of a risky asset are governed by a discrete-time finite-state hidden Markov chain whose states represent the hidden states of an economy We give a recursive filter for the hidden Markov chain and estimates of model parameters using a filter-based EM algorithm We also derive predictors for the hidden Markov chain and some related quantities These quantities are used to estimate the price of a standard European call option Numerical examples based on real financial data are provided to illustrate the implementation of the proposed method (C) 2010 Elsevier B V All rights reserved
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页码：374 / 384
页数：11
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