An exact and explicit formula for pricing lookback options with regime switching
This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the volatility of the underlying risky asset depend on unobservable states of the economy described by a continuous-time hidden Markov chain process. We derive an exact, explicit and closed-form solution for European-style lookback options in a two-state regime switching model.
Year of publication: |
2014-07
|
---|---|
Authors: | Chan, Leunglung ; Zhu, Song-Ping |
Institutions: | arXiv.org |
Saved in:
freely available
Saved in favorites
Similar items by person
-
An exact and explicit formula for pricing Asian options with regime switching
Chan, Leunglung, (2014)
-
An analytic approach for pricing American options with regime switching
Chan, Leunglung, (2021)
-
An explicit analytic formula for pricing barrier options with regime switching
Chan, Leunglung, (2015)
- More ...