Characteristic functions and option valuation in a Markov chain market
Occupation time derivatives
SubjectMarkov chain market
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AbstractWe introduce an approach for valuing some path-dependent options in a discrete-time Markov chain market based on the characteristic function of a vector of occupation times of the chain. A pricing kernel is introduced and analytical formulas for the prices of Asian options and occupation time call options are derived.
Article deposited according to publisher policy posted on SHERPA/ROMEO, June 13, 2012