American Options in Regime-Switching Models

Authors:
Svetlana Boyarchenko;Sergei Levendorskii
Affiliations:
sboyarch@eco.utexas.edu and leven@eco.utexas.edu;-
Venue:
SIAM Journal on Control and Optimization
Year:
2009

Citing 0
Cited 4

A Finite Time Horizon Optimal Stopping Problem with Regime Switching

SIAM Journal on Control and Optimization
Optimal Stopping in Lévy Models for Nonmonotone Discontinuous Payoffs

SIAM Journal on Control and Optimization
Methods for Pricing American Options under Regime Switching

SIAM Journal on Scientific Computing
A radial basis collocation method for pricing American options under regime-switching jump-diffusion models

Applied Numerical Mathematics

Quantified Score

Hi-index	0.00

Visualization

Abstract

The pricing problem for American options in Markov-modulated Lévy models is solved. The early exercise boundaries and prices are calculated using a generalization of Carr's randomization procedure for regime-switching models. The pricing procedure is efficient even if the number of states is large, provided the transition rates are not large w.r.t. the riskless rates. The payoffs and riskless rates may depend on a state. Special cases are stochastic volatility models and models with stochastic interest rate; both must be modeled as finite-state Markov chains.