This article investigates the valuation of currency options when the dynamic of the spot Foreign Exchange (FX) rate is governed by a two-factor Markov-modulated stochastic volatility model, with the first stochastic volatility component driven by a lognormal diffusion process and the second...

In this paper, we develop an option valuation model when the price dynamics of the underlying risky asset is governed by the exponential of a pure jump process specified by a shifted kernel-biased completely random measure. The class of kernel-biased completely random measures is a rich class of...

We investigate the optimal investment timing strategy in a real option framework. Depending on the state of the economy, whose changes are modeled by a Markov chain, the investment cost can take one of two values. The optimal investment timing decision is determined by finding the free boundary...

We use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts....

This paper consists of two parts, a theoretical followed by an empirical contribution. We first give a new framework for fractional differencing in discrete time and show how the definition of fractional differencing that is commonly employed in empirical financial applications arises as a...

In this paper we develop a method for pricing derivatives under a Markov switching version of the Heston-Nandi GARCH (1, 1) model by using a well known tool from actuarial science, namely the Esscher transform. We suppose that the dynamics of the GARCH process switch over time according to one...

We study a mean-variance portfolio selection problem under a hidden Markovian regime-switching Black-Scholes-Merton economy. Under this model, the appreciation rate of a risky share is modulated by a continuous-time, finite-state hidden Markov chain whose states represent different states of an...

The Esscher transform is an important tool in actuarial science. Since the pioneering work of Gerber and Shiu (1994), the use of the Esscher transform for option valuation has also been investigated extensively. However, the relationships between the asset pricing model based on the Esscher...

Under discrete-time GARCH models markets are incomplete so there is more than one price kernel for valuing contingent claims. This motivates the quest for selecting an appropriate price kernel. Different methods have been proposed for the choice of a price kernel. Some of them can be justified...