Article ID Journal Published Year Pages File Type
695482 Automatica 2014 9 Pages PDF
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
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