A0268
Title: Analytically pricing barrier options under regime switching with liquidity and asymmetrical jumps
Authors: Yu-Min Lian - Fu Jen Catholic University (Taiwan) [presenting]
Abstract: An extension to barrier option pricing is introduced by incorporating liquidity risk and jump risk with regime switching, building upon the existing ones. More specifically, the imperfectly liquid stock price dynamics are driven by a Markovian regime-switching liquidity-adjusted double-exponential jump-diffusion model. In addition, the Esscher transform on measure change is adopted for deriving closed-form option pricing formulas in a state-dependent stochastic interest rate circumstance, where the forward interest rate processes are governed by a state-dependent Heath-Jarrow-Morton model. Eventually, the contribution is to the literature about the liquidity and jump impacts under switching regimes on barrier option prices.
