PRICING EQUITY-LINKED FOREIGN EXCHANGE OPTION UNDER A REGIME-SWITCHING MULTI-SCALE JUMP-DIFFUSION MODEL

This paper studies the valuation of equity-linked foreign exchange call option under a regime-switching multi-scale jump diffusion model. The foreign equity price is driven by a regime-switching multi-scale jump-diffusion process and the foreign exchange rate is assumed to follow a regime-switching mean-reversion multi-scale jump-diffusion process. In addition, the correlations of the two processes are not only manifested in the diffusion parts but also in the jump components. The measure change and Fourier transform technique are adopted to calculate the price of equity-linked foreign exchange call option. Numerical examples and comparative analysis are also provided by fast Fourier transform algorithm to illustrate our results.