IDEAS home Printed from https://ideas.repec.org/a/taf/lstaxx/v49y2020i24p5964-5974.html
   My bibliography  Save this article

Option pricing based on a regime switching dividend process

Author

Listed:
  • HuaHui Yan
  • Qihong Chen
  • HuiSheng Shu

Abstract

This article investigates the European style option valuation under the condition that dividend payments follow a regime switching jump diffusion model while the first l of them have been known. Especially, when l = 0, it follows that all the dividend payments become stochastic. Using the generalized Itô formula, we obtain the explicit solution for dividend payments of the model. From Dividend Discount theory, which implies that the stock price should be equal to the net present value of its all future dividend payments, the stock price process is then deduced. Under the usual pricing framework of derivatives, closed-form solution of European-style option is derived via the characteristic function of the occupation times.

Suggested Citation

  • HuaHui Yan & Qihong Chen & HuiSheng Shu, 2020. "Option pricing based on a regime switching dividend process," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 49(24), pages 5964-5974, December.
    • Handle: RePEc:taf:lstaxx:v:49:y:2020:i:24:p:5964-5974
    DOI: 10.1080/03610926.2019.1625920
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/03610926.2019.1625920
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/03610926.2019.1625920?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuanchuang Shan & Huisheng Shu & Haoran Yi, 2023. "Pricing Equity-Indexed Annuities under a Stochastic Dividend Model," Mathematics, MDPI, vol. 11(3), pages 1-12, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:lstaxx:v:49:y:2020:i:24:p:5964-5974. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/lsta .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.