Fard, Farzad; Siu, Tak - In: Annals of Finance 9 (2013) 3, pp. 421-438
We discuss the pricing and risk management problems of standard European-style options in a Markovian regime-switching binomial model. Due to the presence of an additional source of uncertainty described by a Markov chain, the market is incomplete, so the no-arbitrage condition is not sufficient...