Option pricing with continuous-time Markov chain regime switching.

摘要

This dissertation derives several new option pricing models within a continuous-time regime switching framework. The stochastic process governing the underlying asset price is allowed to switch between two state processes according the evolution of a Markov chain. A general framework is presented in which the construction of the asset price as a stochastic time-changed process, with the occupation time of each state as the director, allows for incorporation of regime switching behavior into many current models of option pricing. Option pricing formulas for various regime switching models are then derived. An empirical test finds that regime switching marginally improves pricing performance.