Options pricing with Markov regime switching Heston volatility Hull-White interest rates and stochastic intensity

This paper proposes an options pricing model that incorporates stochastic volatility, stochastic interest rates, and stochastic jump intensity. Market shocks are modeled using a jump process, with each jump governed by an asymmetric double-exponential distribution. The model also integrates a Markov regime-switching framework for volatility and the risk-free rate, allowing the market to alternate between a finite number of distinct economic states. A closed-form solution for European option pricing is derived. To demonstrate the significance of the proposed model, a comparison with various other models is performed, and the sensitivity of the various model parameters is illustrated.