A new tree method for pricing financial derivatives in a regime-switching mean-reverting model

被引：24
作者：
Liu, R. H. [1 ]
机构：
[1] Univ Dayton, Dept Math, Dayton, OH 45469 USA
来源：
NONLINEAR ANALYSIS-REAL WORLD APPLICATIONS | 2012年 / 13卷 / 06期
关键词：
Numerical methods for stochastic nonlinear systems; Regime-switching mean-reverting model; Binomial tree; Financial derivative; STOCK LIQUIDATION; CONVERGENCE; OPTIONS; DISCRETE; AMERICAN;
D O I：
10.1016/j.nonrwa.2012.03.006
中图分类号：
O29 [应用数学];
学科分类号：
070104 ;
摘要：
This paper develops a new tree method for pricing financial derivatives in a regime-switching mean-reverting model. The tree achieves full node recombination and grows linearly as the number of time steps increases. Conditions for non-negative branch probabilities are presented. The weak convergence of the discrete tree approximations to the continuous regime-switching mean-reverting process is established. To illustrate the application in mathematical finance, the recombining tree is used to price commodity options and zero-coupon bonds. Numerical results are provided and compared. (C) 2012 Elsevier Ltd. All rights reserved.
引用
收藏
页码：2609 / 2621
页数：13
相关论文
共 47 条
  • [1] A simple approach for pricing equity options with Markov switching state variables
    Aingworth, Donald D.
    Das, Sanjiv R.
    Motwani, Rajeev
    [J]. QUANTITATIVE FINANCE, 2006, 6 (02) : 95 - 105
  • [2] AFFINE LATTICE MODELS
    Albanese, Claudio
    Kuznetsov, Alexey
    [J]. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, 2005, 8 (02) : 223 - 238
  • [3] [Anonymous], 1998, The Journal of Dervitavies, DOI DOI 10.3905/JOD.1998.408011
  • [4] [Anonymous], 2008, APPL MATH FINANCE
  • [5] [Anonymous], 2001, SPRINGER FINANCE
  • [6] Term structure of interest rates with regime shifts
    Bansal, R
    Zhou, H
    [J]. JOURNAL OF FINANCE, 2002, 57 (05) : 1997 - 2043
  • [7] Pricing exotic options under regime switching
    Boyle, Phelim
    Draviam, Thangaraj
    [J]. INSURANCE MATHEMATICS & ECONOMICS, 2007, 40 (02) : 267 - 282
  • [8] Buffington J., 2002, INT J THEORETICAL AP, V5, P497, DOI DOI 10.1142/S0219024902001523
  • [9] Solving a nonlinear PDE that prices real options using utility based pricing methods
    Caister, N. C.
    Govinder, K. S.
    O'Hara, J. G.
    [J]. NONLINEAR ANALYSIS-REAL WORLD APPLICATIONS, 2011, 12 (04) : 2408 - 2415
  • [10] Smooth convergence in the binomial model
    Chang, Lo-Bin
    Palmer, Ken
    [J]. FINANCE AND STOCHASTICS, 2007, 11 (01) : 91 - 105
12345