2011/05/23 by Alessandro Ramponi, Ramponi, Alessandro
Economics, Econometrics and Finance · Social Sciences · #60J75 #91G20 #91G60 #Capital Investment and Risk Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Insurance, Mortality, Demography, Risk Management #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1105.4567
openalex publication_date 2011/05/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper we consider a jump-diffusion dynamic whose parameters are\ndriven by a continuous time and stationary Markov Chain on a finite state space\nas a model for the underlying of European contingent claims. For this class of\nprocesses we firstly outline the Fourier transform method both in log-price and\nlog-strike to efficiently calculate the value of various types of options and\nas a concrete example of application, we present some numerical results within\na two-state regime switching version of the Merton jump-diffusion model. Then\nwe develop a closed-form solution to the problem of pricing a Forward Starting\nOption and use this result to approximate the value of such a derivative in a\ngeneral stochastic volatility framework.\n