A Dupire equation for a regime-switching model

Robert J. Elliott; Leunglung Chan; Tak Kuen Siu

doi:10.1142/S0219024915500235

A Dupire equation for a regime-switching model

Robert J. Elliott, Leunglung Chan, Tak Kuen Siu

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

Abstract

A forward equation, which is also called the Dupire formula, is obtained for European call options when the price dynamics of the underlying risky assets are assumed to follow a regime-switching local volatility model. Using a regime-switching version of the adjoint formula, a system of coupled forward equations is derived for the price of the European call over different states of the economy.

Original language	English
Article number	1550023
Pages (from-to)	1-13
Number of pages	13
Journal	International Journal of Theoretical and Applied Finance
Volume	18
Issue number	4
DOIs	https://doi.org/10.1142/S0219024915500235
Publication status	Published - 22 Jun 2015

Keywords

Esscher transform
Regime-switching local volatility model
forward equations
regime-switching adjoint formula

Access to Document

10.1142/S0219024915500235

Cite this

@article{1d8fe6fc282f4bdda18152803867cbf8,

title = "A Dupire equation for a regime-switching model",

abstract = "A forward equation, which is also called the Dupire formula, is obtained for European call options when the price dynamics of the underlying risky assets are assumed to follow a regime-switching local volatility model. Using a regime-switching version of the adjoint formula, a system of coupled forward equations is derived for the price of the European call over different states of the economy.",

keywords = "Esscher transform, Regime-switching local volatility model, forward equations, regime-switching adjoint formula",

author = "Elliott, {Robert J.} and Leunglung Chan and Siu, {Tak Kuen}",

year = "2015",

month = jun,

day = "22",

doi = "10.1142/S0219024915500235",

language = "English",

volume = "18",

pages = "1--13",

journal = "International Journal of Theoretical and Applied Finance",

issn = "0219-0249",

publisher = "World Scientific Publishing",

number = "4",

}

TY - JOUR

T1 - A Dupire equation for a regime-switching model

AU - Elliott, Robert J.

AU - Chan, Leunglung

AU - Siu, Tak Kuen

PY - 2015/6/22

Y1 - 2015/6/22

N2 - A forward equation, which is also called the Dupire formula, is obtained for European call options when the price dynamics of the underlying risky assets are assumed to follow a regime-switching local volatility model. Using a regime-switching version of the adjoint formula, a system of coupled forward equations is derived for the price of the European call over different states of the economy.

AB - A forward equation, which is also called the Dupire formula, is obtained for European call options when the price dynamics of the underlying risky assets are assumed to follow a regime-switching local volatility model. Using a regime-switching version of the adjoint formula, a system of coupled forward equations is derived for the price of the European call over different states of the economy.

KW - Esscher transform

KW - Regime-switching local volatility model

KW - forward equations

KW - regime-switching adjoint formula

UR - http://www.scopus.com/inward/record.url?scp=84931562847&partnerID=8YFLogxK

U2 - 10.1142/S0219024915500235

DO - 10.1142/S0219024915500235

M3 - Article

AN - SCOPUS:84931562847

SN - 0219-0249

VL - 18

SP - 1

EP - 13

JO - International Journal of Theoretical and Applied Finance

JF - International Journal of Theoretical and Applied Finance

IS - 4

M1 - 1550023

ER -

A Dupire equation for a regime-switching model

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this