The paper focuses on the problem of pricing and hedging a European contingent claim for an incomplete market model, in which evolution of price processes for a saving account and stocks depends on an observable Markov chain. The pricing function is evaluated using the martingale approach. The...

In this paper, we propose Phillips-Perron type, semiparametric testing procedures to distinguish a unit root process from a mean-reverting exponential smooth transition autoregressive one. The limiting nonstandard distributions are derived under very general conditions and simulation evidence...