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- Title
ATTAINABLE CONTINGENT CLAIMS IN A MARKOVIAN REGIME-SWITCHING MARKET.
- Authors
ELLIOTT, ROBERT J.; SIU, TAK KUEN
- Abstract
It is known that the market in a Markovian regime-switching model is, in general, incomplete, so not all contingent claims can be perfectly hedged. We show, in this paper, how certain contingent claims are attainable in the regime-switching market using a money market account, a share and a zero-coupon bond. General contingent claims with payoffs depending on both the share price and the state of the regime-switching process are considered. We apply a martingale representation result to show the attainability of a European-style contingent claim. We also extend our analysis to Asian-style and American-style contingent claims.
- Subjects
MONEY market; LEGAL claims; MARKOV processes; INTERNATIONAL regimes; ECONOMIC models; PRICES; EXOTIC options (Finance); HEDGING (Finance)
- Publication
International Journal of Theoretical & Applied Finance, 2012, Vol 15, Issue 8, p-1
- ISSN
0219-0249
- Publication type
Article
- DOI
10.1142/S0219024912500550