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PRICING OF POWER OPTIONS UNDER THE REGIME-SWITCHING MODEL
PRICING OF POWER OPTIONS UNDER THE REGIME-SWITCHING MODEL
Journal of applied mathematics & informatics. 2014. Sep, 32(5_6): 665-673
  • Received : May 19, 2014
  • Published : September 30, 2014
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Kim Jerim

Abstract
Power options have payoffs that are determined by the price of the underlying asset raised to some power. In this paper, power options are considered under a regime-switching model which can capture complex asset dynamics by permitting switching between different regimes. The pricing formulas for the Laplace transforms of power options are obtained. The prices of power options are calculated using the formulas and compared with the results of the Monte Carlo simulation.
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