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Type: Journal article
Title: A Dupire equation for a regime-switching model
Author: Elliott, R.
Chan, L.
Siu, T.
Citation: International Journal of Theoretical and Applied Finance, 2015; 18(4):1550023-1-1550023-13
Publisher: World Scientific Publishing
Issue Date: 2015
ISSN: 0219-0249
Statement of
Robert J. Elliott, Leunglung Chan, Tak Kuen Siu
Abstract: A forward equation, which is also called the Dupire formula, is obtained for European call options when the price dynamics of the underlying risky assets are assumed to follow a regime-switching local volatility model. Using a regime-switching version of the adjoint formula, a system of coupled forward equations is derived for the price of the European call over different states of the economy.
Keywords: Regime-switching local volatility model; Esscher transform; forward equations; regime-switching adjoint formula
Rights: © World Scientific Publishing Company
DOI: 10.1142/S0219024915500235
Appears in Collections:Aurora harvest 3
Mathematical Sciences publications

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