Non-Markovian Regime-Switching Models

2018 ◽  
Author(s):  
Chang-Jin Kim ◽  
Jaeho Kim
Keyword(s):  
Regime Switching ◽  
Regime Switching Models ◽  
Switching Models ◽  
Markovian Regime Switching ◽  
Markovian Regime

A RECOMBINING TREE METHOD FOR OPTION PRICING WITH STATE-DEPENDENT SWITCHING RATES

2016 ◽  
Vol 19 (02) ◽  
pp. 1650012 ◽  
Author(s):  
J. X. JIANG ◽  
R. H. LIU ◽  
D. NGUYEN
Keyword(s):  
Option Pricing ◽  
Regime Switching ◽  
Asset Price ◽  
Numerical Results ◽  
Price Process ◽  
State Dependent ◽  
Switching Models ◽  
Markovian Regime Switching ◽  
Tree Method ◽  
Markovian Regime

This paper develops simple and efficient tree approaches for option pricing in switching jump diffusion models where the rates of switching are assumed to depend on the underlying asset price process. 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. Numerical results are provided and compared with results reported in the literature for the 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.

ROBUST STABILITY, STABILISATION AND H-INFINITY CONTROL FOR PREMIUM-RESERVE MODELS IN A MARKOVIAN REGIME SWITCHING DISCRETE-TIME FRAMEWORK

2016 ◽  
Vol 46 (3) ◽  
pp. 747-778 ◽  
Author(s):  
Lin Yang ◽  
Athanasios A. Pantelous ◽  
Hirbod Assa
Keyword(s):  
Discrete Time ◽  
Regime Switching ◽  
Structural Changes ◽  
Linear Matrix ◽  
H Infinity Control ◽  
R Process ◽  
The Stability ◽  
Markovian Regime Switching ◽  
Markovian Regime

AbstractThe premium pricing process and the medium- and long-term stability of the reserve policy under conditions of uncertainty present very challenging issues in relation to the insurance world. Over the last two decades, applications of Markovian regime switching models to finance and macroeconomics have received strong attention from researchers, and particularly market practitioners. However, relatively little research has so far been carried out in relation to insurance. This paper attempts to consider how a linear Markovian regime switching system in discrete-time could be applied to model the medium- and long-term reserves and the premiums (abbreviated here as the P-R process) for an insurer. Some recently developed techniques from linear robust control theory are applied to explore the stability, stabilisation and robust H∞-control of a P-R system, and the potential effects of abrupt structural changes in the economic fundamentals, as well as the insurer's strategy over a finite time period. Sufficient linear matrix inequality conditions are derived for solving the proposed sub-problems. Finally, a numerical example is presented to illustrate the applicability of the theoretical results.

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