Table of Contents Author Guidelines Submit a Manuscript
Discrete Dynamics in Nature and Society
Volume 2018, Article ID 8545841, 15 pages
https://doi.org/10.1155/2018/8545841
Research Article

Pricing Vulnerable Options with Market Prices of Common Jump Risks under Regime-Switching Models

1School of Mathematics, China University of Mining and Technology, Xuzhou, China
2School of Management Science and Engineering, Nanjing University of Finance and Economics, Nanjing, China
3School of Finance and Center for Financial Engineering, Nanjing Audit University, Nanjing, China

Correspondence should be addressed to Miao Han; moc.621@oaimnahkcul

Received 2 September 2017; Accepted 14 December 2017; Published 21 January 2018

Academic Editor: Paolo Renna

Copyright © 2018 Miao Han et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Linked References

  1. H. Johnson and R. Stulz, “The pricing of options with default risk,” The Journal of Finance, vol. 42, no. 2, pp. 267–280, 1987. View at Publisher · View at Google Scholar
  2. P. Klein, “Pricing black-scholes options with correlated credit risk,” Journal of Banking & Finance, vol. 20, no. 7, pp. 1211–1229, 1996. View at Publisher · View at Google Scholar · View at Scopus
  3. J. Hull and A. White, “The impact of default risk on the prices of options and other derivative securities,” Journal of Banking & Finance, vol. 19, no. 2, pp. 299–322, 1995. View at Publisher · View at Google Scholar · View at Scopus
  4. R. A. Jarrow and S. M. Turnbull, “Pricing derivatives on financial securities subject to credit risk,” Journal of Finance, vol. 50, pp. 53–85, 1995. View at Publisher · View at Google Scholar
  5. P. Klein and M. Inglis, “Pricing vulnerable European options when the option's payoff can increase the risk of financial distress,” Journal of Banking & Finance, vol. 25, no. 5, pp. 993–1012, 2001. View at Publisher · View at Google Scholar · View at Scopus
  6. M.-W. Hung and Y.-H. Liu, “Pricing vulnerable options in incomplete markets,” Journal of Futures Markets, vol. 25, no. 2, pp. 135–170, 2005. View at Publisher · View at Google Scholar · View at Scopus
  7. L.-F. Chang and M.-W. Huang, “Valuation of vulnerable american options with correlated credit risk,” Review of Derivatives Research, vol. 9, no. 2, pp. 137–165, 2006. View at Publisher · View at Google Scholar
  8. P. Klein and J. Yang, “Vulnerable American options,” Managerial Finance, vol. 36, no. 5, pp. 414–430, 2010. View at Publisher · View at Google Scholar · View at Scopus
  9. R. C. Merton, “Option pricing when underlying stock returns are discontinuous,” Journal of Financial Economics, vol. 3, no. 1-2, pp. 125–144, 1976. View at Publisher · View at Google Scholar · View at Scopus
  10. S. G. Kou, “A jump-diffusion model for option pricing,” Management Science, vol. 48, no. 8, pp. 1086–1101, 2002. View at Publisher · View at Google Scholar · View at Scopus
  11. W. Xu, W. Xu, H. Li, and W. Xiao, “A jump-diffusion approach to modelling vulnerable option pricing,” Finance Research Letters, vol. 9, no. 1, pp. 48–56, 2012. View at Publisher · View at Google Scholar · View at Scopus
  12. L. Tian, G. Wang, X. Wang, and Y. Wang, “Pricing vulnerable options with correlated credit risk under jump-diffusion processes,” Journal of Futures Markets, vol. 34, no. 10, pp. 957–979, 2013. View at Publisher · View at Google Scholar · View at Scopus
  13. J. D. Hamilton, “A new approach to the economic analysis of nonstationary time series and the business cycle,” Econometrica, vol. 57, no. 2, pp. 357–384, 1989. View at Publisher · View at Google Scholar · View at MathSciNet
  14. R. J. Elliott and C. J. U. Osakwe, “Option pricing for pure jump processes with Markov switching compensators,” Finance and Stochastics, vol. 10, no. 2, pp. 250–275, 2006. View at Publisher · View at Google Scholar · View at MathSciNet
  15. L. Bo, Y. Wang, and X. Yang, “Markov-modulated jump-diffusions for currency option pricing,” Insurance: Mathematics & Economics, vol. 46, no. 3, pp. 461–469, 2010. View at Publisher · View at Google Scholar · View at MathSciNet
  16. W. Wang and W. Wang, “Pricing vulnerable options under a Markov-modulated regime switching model,” Communications in Statistics—Theory and Methods, vol. 39, no. 19, pp. 3421–3433, 2010. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  17. H. Niu and D. Wang, “Pricing vulnerable options with correlated jump-diffusion processes depending on various states of the economy,” Quantitative Finance, vol. 16, no. 7, pp. 1129–1145, 2016. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  18. R. J. Elliott, L. Aggoun, and J. B. Moore, Hidden Markov Models: Estimation and Control, Springer, NY, USA, 1994. View at MathSciNet
  19. H. U. Gerber and E. S. W. Shiu, “Option pricing by esscher transforms (with discussions),” Transactions of the Society of Actuaries, vol. 46, pp. 99–191, 1994. View at Google Scholar
  20. R. J. Elliott, L. Chan, and T. K. Siu, “Option pricing and Esscher transform under regime switching,” Annals of Finance, vol. 1, no. 4, pp. 423–432, 2005. View at Publisher · View at Google Scholar · View at Scopus
  21. J. Buffington and R. J. Elliott, “Regime switching and European options,” in Stochastic Theory and Control -Proceedings of a Workshop held in Lawrence, Kansas, vol. 280 of Lect. Notes Control Inf. Sci., pp. 73–82, Springer, Germany, 2002. View at Google Scholar · View at MathSciNet