Option Pricing when the Regime-Switching Risk is Priced

作     者：Tak Kuen Siu Hailiang Yang 

作者机构：Department of Mathematics and Statistics Curtin University of Technology Perth W.A. 6845 Australia Department of Statistics and Actuarial Science the University of Hong Kong Pokfulam Road Hong Kong 

出 版 物：《Acta Mathematicae Applicatae Sinica》 (应用数学学报（英文版）)

年 卷 期：2009年第25卷第3期

页      面：369-388页

核心收录：

学科分类：02[经济学] 0202[经济学-应用经济学] 020208[经济学-统计学] 07[理学] 0714[理学-统计学（可授理学、经济学学位）] 070103[理学-概率论与数理统计] 0701[理学-数学] 

基　　金：the Research Grants Councilof the Hong Kong Special Administrative Region China(Project No.HKU 754008H) 

主　　题：Option valuation regime-switching risk two-stage pricing procedure Esscher transform martingale restriction min-max entropy problem 

摘      要：We study the pricing of an option when the price dynamic of the underlying risky asset is governed by a Markov-modulated geometric Brownian motion. We suppose that the drift and volatility of the underlying risky asset are modulated by an observable continuous-time, finite-state Markov chain. We develop a two- stage pricing model which can price both the diffusion risk and the regime-switching risk based on the Esscher transform and the minimization of the maximum entropy between an equivalent martingale measure and the real-world probability measure over different states. Numerical experiments are conducted and their results reveal that the impact of pricing regime-switching risk on the option prices is significant.