FOURIER TRANSFORM METHODS FOR REGIME-SWITCHING JUMP-DIFFUSIONS AND THE PRICING OF FORWARD STARTING OPTIONS

By Alessandro Ramponi. 2011

49 citations recorded by the source corpus.

In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes we firstly outline the Fourier transform method both in log-price and log-strike to efficiently calculate the value of various types of options and as a concrete example of application, we present some numerical results within a two-state regime switching version of the Merton jump-diffusion model. Then we develop a closed-form solution to the problem of pricing a Forward Starting Option and use this result to approximate the value of such a derivative in a general stochastic volatility framework.

Subfields: Demography, Finance

View Paper: https://www.semanticscholar.org/paper/1fcdd8fc109d75ae5d0c90d81196e310acca6df9

Citations in the corpus

• Efficient Asian option pricing under regime switching jump diffusions and stochastic volatility models (2020, unknown): “The next result, which follows from the work of Buffington and Elliot (2002), Chourdakis (2002), Ramponi (2012), connects the characteristic functions φ̃ jX t (ξ) with that of X t , given the possibility of visiting multiple states within t .”