Risk Minimizing Option Pricing in a Regime Switching Market
Authors:
Amogh Deshpande a;
Mrinal K. Ghosh a
| Affiliation: | a Department of Mathematics, Indian Institute of Science, Bangalore, India |
DOI:
10.1080/07362990701857194
Publication Frequency:
6 issues per year
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Abstract
We study option pricing in a regime switching market where the risk free interest rate, growth rate and the volatility of a stock depends on a finite state Markov chain. Using a minimal martingale measure we show that the risk minimizing option price satisfies a system of Black-Scholes partial differential equations with weak coupling.
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| Keywords: Black-Scholes equations; Minimal martingale measure; Risk minimizing option price; Regime switching market |
| Mathematics Subject Classification (2000): 91B28; 91B70 |
| view references (15) |

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