Risk-minimizing option pricing under a Markov-modulated jump-diffusion model with stochastic volatility

In this paper, we deal with the pricing of European style options when the dynamics of the risky underlying asset are driven by a Markov-modulated jump diffusion with stochastic volatility. We investigate the Radon–Nikodym derivative for the minimal martingale measure and a partial differential equation approach for pricing European options. An optimal hedging strategy in terms of local risk minimization is obtained.

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Year of publication:	2012
Authors:	Su, Xiaonan ; Wang, Wensheng ; Hwang, Kyo-Shin
Published in:	Statistics & Probability Letters. - Elsevier, ISSN 0167-7152. - Vol. 82.2012, 10, p. 1777-1785
Publisher:	Elsevier
Subject:	Regime switching \| Jump-diffusion processes \| Stochastic volatility \| Local risk minimization \| Option pricing

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010597161