Characteristic functions and option valuation in a Markov chain market
We 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
Markov chain market, Occupation times
Robert J. Elliott, Chuin Ching Liew, Tak Kuen Siu, Characteristic functions and option valuation in a Markov chain market, Computers & Mathematics with Applications, Volume 62, Issue 1, July 2011, Pages 65-74