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https://hdl.handle.net/2440/91938
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Type: | Journal article |
Title: | Attainable contingent claims in a Markovian regime-switching market |
Author: | Elliott, R. Siu, T. |
Citation: | International Journal of Theoretical and Applied Finance, 2012; 15(8):1250055-1-1250055-19 |
Publisher: | World Scientific Publishing |
Issue Date: | 2012 |
ISSN: | 0219-0249 1793-6322 |
Statement of Responsibility: | Robert J. Elliott, Tak Kuen Siu |
Abstract: | It is known that the market in a Markovian regime-switching model is, in general, incomplete, so not all contingent claims can be perfectly hedged. We show, in this paper, how certain contingent claims are attainable in the regime-switching market using a money market account, a share and a zero-coupon bond. General contingent claims with payoffs depending on both the share price and the state of the regime-switching process are considered. We apply a martingale representation result to show the attainability of a European-style contingent claim. We also extend our analysis to Asian-style and American-style contingent claims. |
Keywords: | Contingent claims; attainability; hedging; Markovian regime switching models; martingale representation; exotic options |
Rights: | © World Scientific Publishing Company |
DOI: | 10.1142/S0219024912500550 |
Grant ID: | http://purl.org/au-research/grants/arc/DP1096243 |
Published version: | http://dx.doi.org/10.1142/s0219024912500550 |
Appears in Collections: | Aurora harvest 2 Mathematical Sciences publications |
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