Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
695482 | Automatica | 2014 | 9 Pages |
Abstract
In this paper, we consider a numerical European-style option pricing method under two regime-switching underlying assets depending on the market regime. For a risk neutral market condition, we consider regime-switching model with two assets using a Feynman–Kac type formula. And to solve the option problem with regime-switching model, we apply an operator splitting method. Numerical examples show the volatility smile and the volatility term structure under varying parameters on a two state regime switching model.
Related Topics
Physical Sciences and Engineering
Engineering
Control and Systems Engineering
Authors
Junseok Kim, Darae Jeong, Dong-Hoon Shin,