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In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition rate, to meet the existence of classical solution of the modified price equation, the estimator is approximated in the class of smooth functions and furthermore, the convergence is established. Later, the existence of the solution of the modified price equation is verified and the point-wise convergence of such approximation of option price is proved to answer the tractability of its application in Finance. To demonstrate the consistency in result a numerical experiment has been reported.
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure jump process,
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model has been s
This paper studies pricing derivatives in an age-dependent semi-Markov modulated market. We consider a financial market where the asset price dynamics follow a regime switching geometric Brownian motion model in which the coefficients depend on finit
The purpose of this paper is to analyze the problem of option pricing when the short rate follows subdiffusive fractional Merton model. We incorporate the stochastic nature of the short rate in our option valuation model and derive explicit formula f
This paper presents a framework of imitating the price behavior of the underlying stock for reinforcement learning option price. We use accessible features of the equities pricing data to construct a non-deterministic Markov decision process for mode