Fourier Transform Methods for Regime-Switching Jump-Diffusions and the Pricing of Forward Starting Options
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes we firstly outline the Fourier transform method both in log-price and log-strike to efficiently calculate the value of various types of options and as a concrete example of application, we present some numerical results within a two-state regime switching version of the Merton jump-diffusion model. Then we develop a closed-form solution to the problem of pricing a Forward Starting Option and use this result to approximate the value of such a derivative in a general stochastic volatility framework.
Year of publication: |
2011-05
|
---|---|
Authors: | Ramponi, Alessandro |
Institutions: | arXiv.org |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Ramponi, Alessandro, (2014)
-
Ramponi, Alessandro, (2012)
-
Random Time Forward Starting Options
Antonelli, Fabio, (2015)
- More ...