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...

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...

We consider two sequences of Markov chains inducing equivalent measures on the discrete path space. We establish conditions under which these two measures converge weakly to measures induced on the Wiener space by weak solutions of two SDEs, which are unique in the sense of probability law. We...

We study both theoretically and empirically option prices on firms undergoing a cash merger offer. To estimate the merger's success probability, we use a Markov Chain Monte Carlo (MCMC) method using a state space representation of our model. Our estimated probability measure has significant...

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...

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...