Option valuation under a regime-switching constant elasticity of variance process

Robert J. Elliott; Leunglung Chan; Tak Kuen Siu

doi:10.1016/j.amc.2012.10.047

Option valuation under a regime-switching constant elasticity of variance process

Robert J. Elliott^*, Leunglung Chan, Tak Kuen Siu

^*Corresponding author for this work

Department of Applied Finance

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

15 Citations (Scopus)

Abstract

We investigate the pricing of both European and American-style options when the price dynamics of the underlying risky assets are governed by a Markov-modulated constant elasticity of variance process. Both probabilistic and partial differential equation approaches are considered in deriving the value of a European-style option. For the case of an American-style option, we consider a probabilistic approach and derive an integral representation for the early exercise premium.

Original language	English
Pages (from-to)	4434-4443
Number of pages	10
Journal	Applied Mathematics and Computation
Volume	219
Issue number	9
DOIs	https://doi.org/10.1016/j.amc.2012.10.047
Publication status	Published - 1 Jan 2013

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10.1016/j.amc.2012.10.047

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abstract = "We investigate the pricing of both European and American-style options when the price dynamics of the underlying risky assets are governed by a Markov-modulated constant elasticity of variance process. Both probabilistic and partial differential equation approaches are considered in deriving the value of a European-style option. For the case of an American-style option, we consider a probabilistic approach and derive an integral representation for the early exercise premium.",

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N2 - We investigate the pricing of both European and American-style options when the price dynamics of the underlying risky assets are governed by a Markov-modulated constant elasticity of variance process. Both probabilistic and partial differential equation approaches are considered in deriving the value of a European-style option. For the case of an American-style option, we consider a probabilistic approach and derive an integral representation for the early exercise premium.

AB - We investigate the pricing of both European and American-style options when the price dynamics of the underlying risky assets are governed by a Markov-modulated constant elasticity of variance process. Both probabilistic and partial differential equation approaches are considered in deriving the value of a European-style option. For the case of an American-style option, we consider a probabilistic approach and derive an integral representation for the early exercise premium.

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Option valuation under a regime-switching constant elasticity of variance process

Abstract

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