In this paper, we propose a general valuation framework for option pricing problems related to skew diffusions based on a continuous-time Markov chain approximation to the underlying stochastic process. We obtain an explicit closed-form approximation of the transition density of a general skew...

This paper investigates the American option price in a two-state regime-switching model. The dynamics of underlying are driven by a Markov-modulated Geometric Wiener process. That means the interest rate, the appreciation rate, and the volatility of underlying rely on hidden states of the...

Rough volatility models have recently been empirically shown to provide a good fit to historical volatility time series and implied volatility smiles of SPX options. They are continuous-time stochastic volatility models, whose volatility process is driven by a fractional Brownian motion with...

This paper establishes the precise second order convergence rates of the continuous-time Markov chain (CTMC) approximation method for pricing options and calculating its Greeks under the general framework of stochastic local volatility models, which include the Heston and SABR models as special...

In this paper, we present a new approach with which American option price under a general regime-switching model with an arbitrary finite number of economic states can be efficiently computed without solving a system of $n$ differential equations simultaneously. Comparing with all the existing...

We present an approach for pricing American put options with a regime-switching volatility. Our method reveals that the option price can be expressed as the sum of two components: the price of a European put option and the premium associated with the early exercise privilege. Our analysis...

The concern of this article is to derive a regime switching model that can be utilized to price European call options for a financial market that exhibits structural changes with time. The model is formulated based on the fact that the underlying asset process is described by a geometric...