| A Markov-modulated Model for Continuous-Installment Option Problems under Regime-Switching |
| کد مقاله : 1016-FEMATH6 |
| نویسندگان |
|
ساغر حیدری * گروه بیمسنجی دانشکده علوم ریاضی دانشگاه شهید بهشتی تهران ایران |
| چکیده مقاله |
| In this paper, we study the valuation problem of European continuous-installment options under Markov-modulated models with partial differential equation approach. Due to the opportunity of continuing or stopping to pay installments in these style options, the valuation problem can be formulated as partial differential equations with free boundary features. Under regime switching model in which the dynamics of the change of economic regimes is modeled by a Markov chain, the problem turns to coupled partial differential equations (CPDE) with free boundary. To solve the problem, we first expressed the truncated CPDE as a linear complementary problem (LCP), then a finite element method is proposed to solve the resulted variational inequality. We establish conditions under which the proposed method is convergence. This research will be completed by illustrating some numerical experiments in order to examine the stability and accuracy of the finite element method. Finally we compare our results under regime switching model with some recent works. |
| کلیدواژه ها |
| continuous-installment option, regime-switching model, linear complementary problem, finite element method |
| وضعیت: پذیرفته شده برای ارائه شفاهی |