Ghosh, Mrinal K. ; Goswami, Anindya (2009) Risk minimizing option pricing in a semi-Markov modulated market SIAM Journal on Control and Optimization, 48 (3). pp. 1519-1541. ISSN 0363-0129
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Official URL: http://link.aip.org/link/?SJCODC/48/1519/1
Related URL: http://dx.doi.org/10.1137/080716839
Abstract
We address risk minimizing option pricing in a semi-Markov modulated market where the floating interest rate depends on a finite state semi-Markov process. The growth rate and the volatility of the stock also depend on the semi-Markov process. Using the Föllmer-Schweizer decomposition we find the locally risk minimizing price for European options and the corresponding hedging strategy. We develop suitable numerical methods for computing option prices.
| Item Type: | Article |
|---|---|
| Source: | Copyright of this article belongs to Society for Industrial and Applied Mathematics. |
| Keywords: | Semi-Markov Modulated Market; Minimal Martingale Measure; Locally Risk Minimizing Option Price; Black-Scholes Equations |
| ID Code: | 77020 |
| Deposited On: | 09 Jan 2012 10:04 |
| Last Modified: | 09 Jan 2012 10:04 |
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