Abstract
Using stochastic flows of diffeomorphisms relating to a Markov chain together with the Itô's differentiation rule, the differentiability of the price of a European-style contingent claim with respect to the underlying state variables is proved in a continuous-time Markov chain market. The differentiability results are also used to calculate the Greeks for hedging.
Original language | English |
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Pages (from-to) | 110-122 |
Number of pages | 13 |
Journal | Stochastic Analysis and Applications |
Volume | 33 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2 Jan 2015 |
Keywords
- Differentiability
- Hedging
- Markov chain market
- Stochastic flows