On pricing and hedging options in regime-switching models with feedback effect

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dc.contributor.authorElliott, R.
dc.contributor.authorSiu, T.
dc.contributor.authorBadescu, A.
dc.date.issued2011
dc.description.abstractWe study the pricing and hedging of European-style derivative securities in a Markov, regime-switching, model with a feedback effect depending on the economic condition. We adopt a pricing kernel which prices both financial and economic risks explicitly in a dynamically incomplete market and we provide an equilibrium analysis. A martingale representation for a European-style index option's price is established based on the price kernel. The martingale representation is then used to construct the local risk-minimizing strategy explicitly and to characterize the corresponding pricing measure. © 2011 Elsevier B.V.
dc.description.statementofresponsibilityRobert J. Elliott, Tak Kuen Siu, Alexandru Badescu
dc.identifier.citationJournal of Economic Dynamics and Control, 2011; 35(5):694-713
dc.identifier.doi10.1016/j.jedc.2010.12.014
dc.identifier.issn0165-1889
dc.identifier.issn1879-1743
dc.identifier.urihttp://hdl.handle.net/2440/69016
dc.language.isoen
dc.publisherElsevier Science BV
dc.rightsCopyright © 2011 Elsevier B.V. All rights reserved.
dc.source.urihttps://doi.org/10.1016/j.jedc.2010.12.014
dc.subjectPricing and hedging
dc.subjectRegime-switching
dc.subjectFeedback effect
dc.subjectProduct price kernel
dc.subjectLocal risk-minimization
dc.titleOn pricing and hedging options in regime-switching models with feedback effect
dc.typeJournal article
pubs.publication-statusPublished

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