Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1143314 | Operations Research Letters | 2011 | 8 Pages |
Abstract
In this paper, we provide an analytic valuation method for European-type contingent claims written on multiple assets in a stochastic market environment. We employ a two-state Markov regime-switching volatility in order to reflect stochastically changing market conditions. The method is developed by exploiting the probability density of the occupation time for which the underlying asset processes are in a certain regime during a time period. In order to show its usefulness, we derive analytic valuation formulas for quanto options and exchange options with two underlying assets, as examples.
Related Topics
Physical Sciences and Engineering
Mathematics
Discrete Mathematics and Combinatorics
Authors
Ji Hee Yoon, Bong-Gyu Jang, Kum-Hwan Roh,