Valuation of quanto options in a Markovian regime-switching market: A Markov-modulated Gaussian HJM model

Chen, Son‐Nan; Chiang, Mi-Hsiu; Hsu, P. L.; Li, Changyi

doi:10.1016/j.frl.2013.09.002

Cited by 12 publications

(1 citation statement)

References 19 publications

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“…As far as we know, there are not so many papers focusing upon multivariate option pricing in a regime‐switching framework, especially not in a MMLP setting, and none of them considers synchronous jumps. Among others, we refer to Yoon et al, Chen et al, Fan and Wang, and Deelstra and Simon . In particular, Deelstra and Simon study the pricing of exchange and quanto options in a MMLP framework by using a fast Fourier transform method.…”

Section: Introductionmentioning

confidence: 99%

Spread and basket option pricing in a Markov‐modulated Lévy framework with synchronous jumps

Deelstra

Kozpınar

Simon

2018

Appl Stoch Models Bus & Ind

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This paper considers the evaluation of spread and basket options when the underlying asset prices are driven by Markov-modulated Lévy processes with synchronous jumps. In particular, the asset prices may jump whenever there is a change of phase of the underlying Markov process. We further allow for dependence between the different price dynamics. In this general regime-switching framework, we provide lower and upper bounds to the exact option prices based upon ideas from the literature without regime switching. These bounds are obtained via univariate Fourier inversion under the assumption that the joint characteristic functions of the Markov-modulated Lévy processes are known. We study these obtained spread and basket option price approximations in different regime-switching models. Several numerical experiments are included and these show that, especially, the lower bounds have a very high precision.

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