Robust parameter estimation for asset price models with Markov modulated volatilities

Option pricing when the regime-switching risk is priced

“…The applications of this class of models and its continuous-time version penetrate different areas in modern financial economics. Some works on these applications include Elliott and van der Hoek [13] for asset allocation, Pliska [29] and Elliott et al [14] or short rate models, Elliott and Hinz [15] for portfolio analysis and chart analysis, Guo [22] and Buffington and Elliott [2,3] for option valuation and Elliott et al [16] for volatility estimation.…”

Option pricing and Esscher transform under regime switching

“…For an overview of hidden Markov Chain processes and their financial applications, see Elliott et al [11] and Elliott and Kopp [13]. Some works on the use of hidden Markov Chain models in finance include Elliott and van der Hoek [12] for asset allocation, Pliska [35] and Elliott et al [14] for short rate models, Elliott and Hinz [15] for portfolio analysis and chart analysis, Guo [25] for option pricing under market incompleteness, Buffington and Elliott [4,5] for pricing European and American options, Elliott et al [16] for volatility estimation and the working paper by Elliott and Chan in 2004 for a dynamic portfolio selection problem. Much of the work in the literature focus on the use of the Esscher transform for option valuation under incomplete markets induced by Lévy-type processes.…”

The Stochastic Error Rate Estimation of Prediction Distributions

“…In such a setting, the parameter estimation problem posed a real challenge, mainly due to the fact that the paths of the CTMC were unobserved. A standard approach consists in using the celebrated EM algorithm (Dempster, Laird and Rubin, 1977) [8] as proposed, for example in Elliott, Malcolm and Tsoi (2003) [9] and Hamilton (1990) [10], study this problem using a filtering approach.…”