Title :
Contingent Claims Pricing in Markovian Switching Model with Consumption
Author :
He, Zhefei ; Li, Jun ; Wang, Qiong
Author_Institution :
Dept. of Appl. Math., Changzhou Univ., Changzhou, China
Abstract :
The pricing of the derivatives is a hot topic among recent problems in economics and finance. This paper modifies the classical Black-Scholes model by replacing his constant drift and volatility with a finite-state Markov chain. In addition, we take the consumption into consideration. With a Girasnov-like change of measure, we derive the price of the contingent claim and also give an explicit formula to the European call option in a risk-neutral world.
Keywords :
Markov processes; pricing; share prices; Black-Scholes model; European call option; Girasnov-like change of measure; Markovian switching model; contingent claims pricing; economics; finance; finite-state Markov chain; risk-neutral world; Europe; Markov processes; Mathematical model; Portfolios; Pricing; Switches; Vectors; Markovian Switching; contingent claims; martingale; pricing;
Conference_Titel :
Business Intelligence and Financial Engineering (BIFE), 2011 Fourth International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4577-1541-9
DOI :
10.1109/BIFE.2011.42
