Equity with Markov-modulated dividends

We introduce a simple model for the pricing of European-style options when the underlying dividend process is given by a geometric Brownian motion with Markov-modulated coefficients. It turns out that the corresponding stock process is characterized by both stochastic coefficients and jumps. Transform methods are used to recover option prices. The model is calibrated to market data and the results compared with some well-known stochastic volatility models.

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Year of publication:	2009
Authors:	Graziano, Giuseppe Di ; Rogers, L. C. G.
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 9.2009, 1, p. 19-26
Publisher:	Taylor & Francis Journals
Subject:	Stochastic interest rates \| Structure of financial markets \| Stochastic volatility \| Stochastic control \| Quantitative finance \| Pricing models \| Price formation

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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