Optimal Hedging when the Underlying Asset Follows a Regime-switching Markov Process
Author
Abstract
Suggested Citation
Download full text from publisher
References listed on IDEAS
- Robert J. Elliott & Leunglung Chan & Tak Kuen Siu, 2005. "Option pricing and Esscher transform under regime switching," Annals of Finance, Springer, vol. 1(4), pages 423-432, October.
- Ioannis Karatzas & Jaksa Cvitanic, 1999. "On dynamic measures of risk," Finance and Stochastics, Springer, vol. 3(4), pages 451-482.
- Martin Schweizer, 1995. "Variance-Optimal Hedging in Discrete Time," Mathematics of Operations Research, INFORMS, vol. 20(1), pages 1-32, February.
- John Buffington & Robert J. Elliott, 2002. "American Options With Regime Switching," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(05), pages 497-514.
- Jin-Chuan Duan & Ivilina Popova & Peter Ritchken, 2002. "Option pricing under regime switching," Quantitative Finance, Taylor & Francis Journals, vol. 2(2), pages 116-132.
- Ernst Eberlein & Jean Jacod, 1997. "On the range of options prices (*)," Finance and Stochastics, Springer, vol. 1(2), pages 131-140.
- Mary Hardy, 2001. "A Regime-Switching Model of Long-Term Stock Returns," North American Actuarial Journal, Taylor & Francis Journals, vol. 5(2), pages 41-53.
- Jun Sekine, 2004. "Dynamic Minimization of Worst Conditional Expectation of Shortfall," Mathematical Finance, Wiley Blackwell, vol. 14(4), pages 605-618, October.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
- Lee, Hsiang-Tai, 2009. "Optimal futures hedging under jump switching dynamics," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 446-456, June.
- Schweizer, Martin, 1991. "Option hedging for semimartingales," Stochastic Processes and their Applications, Elsevier, vol. 37(2), pages 339-363, April.
- Mingxin Xu, 2006.
"Risk measure pricing and hedging in incomplete markets,"
Annals of Finance, Springer, vol. 2(1), pages 51-71, January.
- Mingxin Xu, 2004. "Risk Measure Pricing and Hedging in Incomplete Markets," Finance 0406004, University Library of Munich, Germany, revised 07 Mar 2006.
- Alizadeh, Amir H. & Nomikos, Nikos K. & Pouliasis, Panos K., 2008. "A Markov regime switching approach for hedging energy commodities," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1970-1983, September.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Jin‐Chuan Duan, 1995. "The Garch Option Pricing Model," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 13-32, January.
- Donald Lien, 2012. "A note on the performance of regime switching hedge strategy," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(4), pages 389-396, April.
- Hans FÃllmer & Peter Leukert, 1999. "Quantile hedging," Finance and Stochastics, Springer, vol. 3(3), pages 251-273.
Most related items
These are the items that most often cite the same works as this one and are cited by the same works as this one.- François, Pascal & Gauthier, Geneviève & Godin, Frédéric, 2014. "Optimal hedging when the underlying asset follows a regime-switching Markov process," European Journal of Operational Research, Elsevier, vol. 237(1), pages 312-322.
- Alexandre Carbonneau & Fr'ed'eric Godin, 2021. "Deep equal risk pricing of financial derivatives with non-translation invariant risk measures," Papers 2107.11340, arXiv.org.
- Jang, Bong-Gyu & Tae, Hyeon-Wuk, 2018. "Option pricing under regime switching: Integration over simplexes method," Finance Research Letters, Elsevier, vol. 24(C), pages 301-312.
- Godin, Frédéric & Lai, Van Son & Trottier, Denis-Alexandre, 2019.
"Option pricing under regime-switching models: Novel approaches removing path-dependence,"
Insurance: Mathematics and Economics, Elsevier, vol. 87(C), pages 130-142.
- Frédéric Godiny & Van Son Lai & Denis-Alexandre Trottier, 2019. "Option Pricing Under Regime-Switching Models: Novel Approaches Removing Path-Dependence," Working Papers 2019-014, Department of Research, Ipag Business School.
- Shin-Yun Wang & Ming-Che Chuang & Shih-Kuei Lin & So-De Shyu, 2021. "Option pricing under stock market cycles with jump risks: evidence from the S&P 500 index," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 25-51, January.
- Alexandre Carbonneau & Fr'ed'eric Godin, 2020. "Equal Risk Pricing of Derivatives with Deep Hedging," Papers 2002.08492, arXiv.org, revised Jun 2020.
- Emilio Russo, 2020. "A Discrete-Time Approach to Evaluate Path-Dependent Derivatives in a Regime-Switching Risk Model," Risks, MDPI, vol. 8(1), pages 1-22, January.
- Godin, Frédéric & Trottier, Denis-Alexandre, 2021. "Option pricing in regime-switching frameworks with the Extended Girsanov Principle," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 116-129.
- Peter Hieber, 2018. "Pricing exotic options in a regime switching economy: a Fourier transform method," Review of Derivatives Research, Springer, vol. 21(2), pages 231-252, July.
- Henri Bertholon & Alain Monfort & Fulvio Pegoraro, 2006.
"Pricing and Inference with Mixtures of Conditionally Normal Processes,"
Working Papers
2006-28, Center for Research in Economics and Statistics.
- Bertholon, H. & Monfort, A. & Pegoraro, F., 2007. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Working papers 188, Banque de France.
- Dong-Mei Zhu & Jiejun Lu & Wai-Ki Ching & Tak-Kuen Siu, 2019. "Option Pricing Under a Stochastic Interest Rate and Volatility Model with Hidden Markovian Regime-Switching," Computational Economics, Springer;Society for Computational Economics, vol. 53(2), pages 555-586, February.
- Tian, Ping & Zhou, Hang & Zhou, Duotai, 2023. "Analysis about the Black-Scholes asset price under the regime-switching framework," International Review of Financial Analysis, Elsevier, vol. 88(C).
- Mercurio, Fabio, 2001. "Claim pricing and hedging under market incompleteness and "mean-variance" preferences," European Journal of Operational Research, Elsevier, vol. 133(3), pages 635-652, September.
- Gondzio, Jacek & Kouwenberg, Roy & Vorst, Ton, 2003.
"Hedging options under transaction costs and stochastic volatility,"
Journal of Economic Dynamics and Control, Elsevier, vol. 27(6), pages 1045-1068, April.
- Roy Kouwenberg & Jacek Gondzio & Ton Vorst, 1999. "Hedging Options under Transaction Costs and Stochastic Volatility," Computing in Economics and Finance 1999 911, Society for Computational Economics.
- Roy H. Kwon & Jonathan Y. Li, 2016. "A stochastic semidefinite programming approach for bounds on option pricing under regime switching," Annals of Operations Research, Springer, vol. 237(1), pages 41-75, February.
- Alessandro Ramponi, 2011. "Mixture Dynamics and Regime Switching Diffusions with Application to Option Pricing," Methodology and Computing in Applied Probability, Springer, vol. 13(2), pages 349-368, June.
- Fan, Kun & Shen, Yang & Siu, Tak Kuen & Wang, Rongming, 2015. "Pricing annuity guarantees under a double regime-switching model," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 62-78.
- Chao Xu & Yinghui Dong & Guojing Wang, 2019. "The pricing of defaultable bonds under a regime-switching jump-diffusion model with stochastic default barrier," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 48(9), pages 2185-2205, May.
- Siu, Tak Kuen, 2008. "A game theoretic approach to option valuation under Markovian regime-switching models," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1146-1158, June.
- Roy Kwon & Jonathan Li, 2016. "A stochastic semidefinite programming approach for bounds on option pricing under regime switching," Annals of Operations Research, Springer, vol. 237(1), pages 41-75, February.
More about this item
Keywords
Dynamic programming; hedging; risk management; regime switching;All these keywords.
JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
NEP fields
This paper has been announced in the following NEP Reports:- NEP-ORE-2012-09-09 (Operations Research)
- NEP-RMG-2012-09-09 (Risk Management)
Statistics
Access and download statisticsCorrections
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:lvl:lacicr:1234. 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.
If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Manuel Paradis (email available below). General contact details of provider: https://edirc.repec.org/data/cirpeca.html .
Please note that corrections may take a couple of weeks to filter through the various RePEc services.