Speaker: Duy Nguyen, Massachusetts College of Liberal Arts
Location: Hill 705
Slides: ( TBA )
ABSTRACT
This paper develops simple and efficient tree approaches for option pricing in switching jump diffusion models. The models generalize many existing models in the literature and in particular, the Markovian regime-switching models with jumps. The proposed trees grow linearly as the number of tree steps increases. Conditions on the choices of key parameters for the tree design are provided that guarantee the positivity of branch probabilities. As interesting applications, we provide a unifying tree method approach for pricing options under most of well-known stochastic volatility jump diffusion models such as : Heston's model, Stein-Stein's model, Hull-White's model, and 3/2 model. Numerical results are provided and compared with results reported in the literature for Markovian regime-switching cases. The reported numerical results for the state-dependent switching models are new and can be used for comparison in the future.