An Analytic Approach for Pricing American Options with Regime Switching

被引：6
|
作者：
Chan, Leunglung [1 ]
Zhu, Song-Ping [2 ]
机构：
[1] Univ New South Wales, Sch Math & Stat, Sydney, NSW 2052, Australia
[2] Univ Wollongong, Sch Math & Appl Stat, Wollongong, NSW 2522, Australia
来源：
JOURNAL OF RISK AND FINANCIAL MANAGEMENT | 2021年 / 14卷 / 05期
关键词：
option pricing; free boundary problem; regime switching; homotopy analysis method; EXPLICIT SOLUTION; VALUATION; APPROXIMATION; BOUNDARY; FORMULA;
D O I：
10.3390/jrfm14050188
中图分类号：
F8 [财政、金融];
学科分类号：
0202 ;
摘要：
This paper investigates the American option price in a two-state regime-switching model. The dynamics of underlying are driven by a Markov-modulated Geometric Wiener process. That means the interest rate, the appreciation rate, and the volatility of underlying rely on hidden states of the economy which can be interpreted in terms of Markov chains. By means of the homotopy analysis method, an explicit formula for pricing two-state regime-switching American options is presented.
引用
收藏
页数：20
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