Pricing Asian Options and Equity-Indexed Annuities with Regime Switching by the Trinomial Tree Method

Yuen, Fei Lung; Yang, Hailiang

doi:10.1080/10920277.2010.10597588

Cited by 32 publications

(36 citation statements)

References 30 publications

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“…The use of modern option pricing theory to investigate some features of insurance products with embedded options was further studied by Wilkie (1987). Some other recent works on fair valuation of insurance products using option pricing theory include Lin and Tan (2003), Siu (2005), Gaillardetz and Lin (2006), Siu et al (2007Siu et al ( , 2008, Lin et al (2009) and Yuen and Yang (2010).…”

Section: Resultsmentioning

confidence: 98%

A hidden Markov regime-switching model for option valuation

Liew

Siu

2010

Insurance: Mathematics and Economics

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Section: Resultsmentioning

confidence: 98%

A hidden Markov regime-switching model for option valuation

Liew

Siu

2010

Insurance: Mathematics and Economics

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“…Compared to (16), the coefficients of the first and second derivatives in (22) become constant which will simplify the calculation. However, (22) includes two unknown variableŝ ( = 1, 2) and a nonsmooth term max (1 − , 0), which will make the solutions somewhat complicated.…”

Section: Laplace Transform Methods For American Option Pricingmentioning

confidence: 99%

“…Markov regime switching models were first introduced by Hamilton [1] and recently have become popular in financial applications including equity options [2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17], bond prices and interest rate derivatives [18][19][20], portfolio selection [21], and trading rules [22][23][24][25][26]. The Markov regime switching models allow the model parameters (drift and volatility coefficients) to depend on a Markov chain which can reflect the information of the market environments and at the same time preserve the simplicity of the models.…”

Section: Introductionmentioning

confidence: 99%

Laplace Transform Methods for a Free Boundary Problem of Time-Fractional Partial Differential Equation System

Zhou

Gao

2017

Discrete Dynamics in Nature and Society

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We study the pricing of the American options with fractal transmission system under two-state regime switching models. This pricing problem can be formulated as a free boundary problem of time-fractional partial differential equation (FPDE) system. Firstly, applying Laplace transform to the governing FPDEs with respect to the time variable results in second-order ordinary differential equations (ODEs) with two free boundaries. Then, the solutions of ODEs are expressed in an explicit form. Consequently the early exercise boundaries and the values for the American option are recovered using the Gaver-Stehfest formula. Numerical comparisons of the methods with the finite difference methods are carried out to verify the efficiency of the methods.

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“…Lin et al (2009) discussed the valuation of EIAs and VAs under a regimeswitching model under the assumption that the model dynamics of the reference investment fund value is a geometric Brownian motion modulated by a continuous-time, finite-state Markov chain. Yuen and Yang (2010) applied the trinomial tree method to value EIAs with regime-switching. first studied the valuation of variable annuity guarantees under a multivariate regimeswitching model.…”

Section: Introductionmentioning

confidence: 99%