Asymptotic analysis of option pricing in a Markov modulated market
Document Type
Article
Publication Title
Operations Research Letters
Abstract
We address asymptotic analysis of option pricing in a regime switching market where the risk free interest rate, growth rate and the volatility of the stocks depend on a finite state Markov chain. We study two variations of the chain namely, when the chain is moving very fast compared to the underlying asset price and when it is moving very slow. Using quadratic hedging and asymptotic expansion, we derive corrections on the locally risk minimizing option price. (C) 2009 Elsevier B.V. All rights reserved.
Publication Date
1-4-2009
Publisher
Elsevier Science Bv
Volume
Vol.37
Issue
Iss.6
Recommended Citation
Basu, Arnab and Ghosh, Mrinal K, "Asymptotic analysis of option pricing in a Markov modulated market" (2009). Faculty Publications. 897.
https://research.iimb.ac.in/fac_pubs/897
