Risk minimizing option pricing in a regime switching market

Deshpande, Amogh ; Ghosh, Mrinal K. (2008) Risk minimizing option pricing in a regime switching market Stochastic Analysis and Applications, 26 (2). pp. 313-324. ISSN 0736-2994

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Related URL: http://dx.doi.org/10.1080/07362990701857194

Abstract

We study option pricing in a regime switching market where the risk free interest rate, growth rate and the volatility of a stock depends on a finite state Markov chain. Using a minimal martingale measure we show that the risk minimizing option price satisfies a system of Black-Scholes partial differential equations with weak coupling.

Item Type:Article
Source:Copyright of this article belongs to Taylor and Francis Ltd.
Keywords:Black-scholes Equations; Minimal Martingale Measure; Risk Minimizing Option Price; Regime Switching Market
ID Code:11952
Deposited On:13 Nov 2010 13:30
Last Modified:02 Jun 2011 07:36

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