Continuous-Time Markov Chain and Regime Switching Approximations with Applications to Options Pricing
Author | : Zhenyu Cui |
Publisher | : |
Total Pages | : 32 |
Release | : 2019 |
ISBN-10 | : OCLC:1304256277 |
ISBN-13 | : |
Rating | : 4/5 (77 Downloads) |
Download or read book Continuous-Time Markov Chain and Regime Switching Approximations with Applications to Options Pricing written by Zhenyu Cui and published by . This book was released on 2019 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this chapter, we present recent developments in using the tools of continuous-time Markov chains for the valuation of European and path-dependent financial derivatives. We also survey results on a newly proposed regime switching approximation to stochastic volatility, and stochastic local volatility models. The presented framework is part of an exciting recent stream of literature on numerical option pricing, and offers a new perspective that combines the theory of diffusion processes, Markov chains, and Fourier techniques. It is also elegantly connected to partial differential equation (PDE) approaches.