European Option Pricing under the Structural Time Series and Markov Regime-switching Model
Journal Title: Financial Forum - Year 2018, Vol 7, Issue 1
Abstract
We present closed-form formulas for the valuation of a European call option whose underlying process is assumed to follow structural time series and the Markov regime-switching process through mean reversion described by a harmonic oscillator. In our model, each parameter has related corresponding economic meaning, and this leads to an easy analy-sis of the interplay between the option and business cycles. Forward rates are assumed under the Heath et al. (1992) HJM framework. The call option analytic formulas are obtained when the joint distribution of occupation times is specified and forward rates are restricted in a one-factor HJM model.
Authors and Affiliations
Pao-Peng Hsu, Che-Yang Lin
Keywords
Related Articles
- EP ID EP680178
- DOI -
- Views 219
- Downloads 0
World Social Security development trend after the international financial crisis
2008 After the outbreak of the International financial crisis , High-income countries , Development of social security in middle-income and low-income countries The is now the main trend : The international financial cri...
SIFIs the function and revelation of international rules for crisis disposal
SIFIs Crisis Disposal International rules are an important part of the international rules of financial Regulation , But these international rules are in the legal The nature remains controversial . from the principles o...
Research on microeconomic fundamentals of international financial Risk transmission : based on company data Angle
The Global spread of financial integration and financial turmoil is a prominent feature of international financial markets today . This , through corporate data research aims to uncover microeconomic fundamentals of link...
German banks in the context of the international financial crisis system discussion-- functional structuralism
Different types of bank business focus different , Performs its own duties three pillar architecture is a German bank body The significant underlying features of the are . in Europe _ in a wave of global financial libera...
Research progress of monetary policy and international capital flow in the post-financial crisis era
after the financial crisis , Significant changes have taken place in the structure and shape of international capital flows . on the one hand , due to widespread implementation in developed countries with quantitative ea...