TY - JOUR
T1 - Attainable contingent claims in a Markovian regime-switching market
AU - Elliott, Robert J.
AU - Siu, Tak Kuen
PY - 2012/12
Y1 - 2012/12
N2 - It is known that the market in a Markovian regime-switching model is, in general, incomplete, so not all contingent claims can be perfectly hedged. We show, in this paper, how certain contingent claims are attainable in the regime-switching market using a money market account, a share and a zero-coupon bond. General contingent claims with payoffs depending on both the share price and the state of the regime-switching process are considered. We apply a martingale representation result to show the attainability of a European-style contingent claim. We also extend our analysis to Asian-style and American-style contingent claims.
AB - It is known that the market in a Markovian regime-switching model is, in general, incomplete, so not all contingent claims can be perfectly hedged. We show, in this paper, how certain contingent claims are attainable in the regime-switching market using a money market account, a share and a zero-coupon bond. General contingent claims with payoffs depending on both the share price and the state of the regime-switching process are considered. We apply a martingale representation result to show the attainability of a European-style contingent claim. We also extend our analysis to Asian-style and American-style contingent claims.
UR - http://www.scopus.com/inward/record.url?scp=84871981943&partnerID=8YFLogxK
U2 - 10.1142/S0219024912500550
DO - 10.1142/S0219024912500550
M3 - Article
AN - SCOPUS:84871981943
SN - 0219-0249
VL - 15
SP - 1
EP - 19
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 8
M1 - 1250055
ER -