We study a mean-variance portfolio selection problem under a hidden Markovian regime-switching Black-Scholes-Merton economy. Under this model, the appreciation rate of a risky share is modulated by a continuous-time, finite-state hidden Markov chain whose states represent different states of an...

The Esscher transform is an important tool in actuarial science. Since the pioneering work of Gerber and Shiu (1994), the use of the Esscher transform for option valuation has also been investigated extensively. However, the relationships between the asset pricing model based on the Esscher...

In this paper we develop a method for pricing derivatives under a Markov switching version of the Heston-Nandi GARCH (1, 1) model by using a well known tool from actuarial science, namely the Esscher transform. We suppose that the dynamics of the GARCH process switch over time according to one...

Purpose – The purpose of this paper is to consider a discrete-time, Markov, regime-switching, affine term-structure model for valuing bonds and other interest rate securities. The proposed model incorporates the impact of structural changes in (macro)-economic conditions on interest-rate...

It is known that the market in a Markovian regime-switching model is, in general, incomplete, so not all contingent claims can be perfectly hedged. We show, in this paper, how certain contingent claims are attainable in the regime-switching market using a money market account, a share and a...

We study the pricing and hedging of European-style derivative securities in a Markov, regime-switching, model with a feedback effect depending on the economic condition. We adopt a pricing kernel which prices both financial and economic risks explicitly in a dynamically incomplete market and we...

This article discusses the pricing of derivatives in a continuous-time, hidden Markov-modulated, pure-jump asset price model. The hidden Markov chain modulating the pure-jump asset price model describes the evolution of the hidden state of an economy over time. The market model is incomplete. We...

Purpose – The purpose of this paper is to consider a discrete‐time, Markov, regime‐switching, affine term‐structure model for valuing bonds and other interest rate securities. The proposed model incorporates the impact of structural changes in (macro)‐economic conditions on...