We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new measure, the Markov chain driving the regimes is no...

Sequential Monte Carlo (SMC) methods have successfully been used in many applications in engineering, statistics and physics. However, these are seldom used in financial option pricing literature and practice. This paper presents SMC method for pricing barrier options with continuous and...

In this article we study the price of an American style option based on hedging the underlying assets at discrete time. Like its European style analog, the value of the option is not given in general by an expectation with respect to an equivalent martingale measure. We provide the optimal...

We propose optimal mean-variance dynamic hedging strategies in discrete time under a multivariate Gaussian regime-switching model. The methodology, which also performs pricing, is robust to time-varying and clustering risk observed in financial time series. As such, it overcomes the main...

In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial time series and our model covers both. To illustrate...

We consider several time series and for each of them, we fit an appropriate dynamic parametric model. This produces serially independent error terms for each time series. The dependence between these error terms is then modeled by a regime-switching copula. The EM algorithm is used for...