We consider the bond valuation problem when the short rate process is described by a Markovian regime-switching Hull-White model or a Markovian regime-switching Cox-Ingersoll-Ross model. In each of the two short rate models, we establish a Markov-modulated exponential-affine bond price formula...

A model is developed for pricing volatility derivatives, such as variance swaps and volatility swaps under a continuous-time Markov-modulated version of the stochastic volatility (SV) model developed by Heston. In particular, it is supposed that the parameters of this version of Heston's SV...

We introduce a model to discuss an optimal investment problem of an insurance company using a game theoretic approach. The model is general enough to include economic risk, financial risk, insurance risk, and model risk. The insurance company invests its surplus in a bond and a stock index. The...

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...

We study the pricing and hedging of European-style derivative securities in a Markov, regime-switching, model with a feedback effect depending on the economic condition. We adopt a pricing kernel which prices both financial and economic risks explicitly in a dynamically incomplete market and we...

Purpose – The purpose of this paper is to consider a discrete-time, Markov, regime-switching, affine term-structure model for valuing bonds and other interest rate securities. The proposed model incorporates the impact of structural changes in (macro)-economic conditions on interest-rate...