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    Please use this identifier to cite or link to this item: https://tkuir.lib.tku.edu.tw/dspace/handle/987654321/77207

    Title: Option Pricing with Markov Switching
    Authors: Fuh, Cheng-der;Ho, Kwok Wah Remus;Hu, Inchi;Wang, Ren-her
    Contributors: 淡江大學財務金融學系
    Keywords: Arbitrage;hidden Markov model;implied volatility;Laplace transform;Markovian tree
    Date: 2012-07
    Issue Date: 2012-06-07 12:59:15 (UTC+8)
    Abstract: In this article, we consider a model of time-varying volatility which generalizes the classical Black-Scholes model to include regime-switching properties. Specifically, the unobservable state variables for stock fluctu-ations are modeled by a Markov process, and the drift and volatility pa-rameters take different values depending on the state of this hidden Markov process. We provide a closed-form formula for the arbitrage-free price of the European call option, when the hidden Markov process has finite number of states. Two simulation methods, the discrete diffusion method and the Markovian tree method, for computing the European call option price are presented for comparison.
    Relation: Journal of Data Science 10(3), pp.483-509
    Appears in Collections:[Graduate Institute & Department of Banking and Finance] Journal Article

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