In this study, we empirically investigate the properties of gold returns, and the European gold options are priced when the underlying gold price dynamics are driven by Markov-modulated jump-diffusion processes. Specifically, the jump events are captured by a compound Poisson process with a...

The Intergovernmental Panel on Climate Change Fourth Assessment Report (2007) indicates that unanticipated catastrophic events could increase with time because of global warming. Therefore, it seems inadequate to assume that arrival process of catastrophic events follows a pure Poisson process...

This study proposes a recursive formula to value a surrenderable participating contract. To capture the dynamics of stock returns over expansion–recession cycles and the occurrence of catastrophic events, we assume the rate of return of the reference portfolio would follow a regime-switching...

In this paper, we propose a hidden Markov switching moving average model (MS-MA model) to extend the moving average model when the dynamic process of stock returns is predictable. That is, hidden Markov chain can be utilized to better describe the stock return dynamics when moving averages are...

Housing price jump risk and the subprime crisis have drawn more attention to the precise estimation of mortgage insurance premiums. This study derives the pricing formula for mortgage insurance premiums by assuming that the housing price process follows the jump diffusion process, capturing...

We provide closed-form solutions for a continuous time, Markov-modulated jump diffusion model in a general equilibrium framework for options prices under a variety of jump diffusion specifications. We further demonstrate that the two-state model provides the leptokurtic return features,...

Most of the interest rate derivative pricing models are jump-diffusion models, where the jump risk is assumed diversifiable. In this paper, we propose a Heath-Jarrow-Morton model with systematic jump risk to derive the no-arbitrage condition using Esscher transformation. Based on the...

With the intersection of market and credit risk, the first contribution is to derive the analytic formulas of the Credit Linked Notes (CLNs) and the leveraged total return CLNs issued by an Special Purpose Vehicle (SPV) or the protection buyer. The second contribution is to prove that the values...

The article makes two contributions to the literature. The first contribution is to derive a closed-form solution of Taiwanese capped options. We also provide the properties of Taiwanese capped options and the phenomenon of delta jump at monitoring dates. When the interest rate changes...