This paper is concerned with the valuation of single and double barrier knock-out call options in a Markovian regime switching model with specific rebates.The integral formulas of the rebates are derived via matrix Wi...This paper is concerned with the valuation of single and double barrier knock-out call options in a Markovian regime switching model with specific rebates.The integral formulas of the rebates are derived via matrix Wiener-Hopf factorizations and Fourier transform techniques,also,the integral representations of the option prices are constructed.Moreover,the first-passage time density functions in two-state regime model are derived.As applications,several numerical algorithms and numerical examples are presented.展开更多
Since the latter half of 2010, a new round of inflation has gradually been manifesting in China. The debate regarding whether excess money supply is responsible for this inflation has attracted scholars to investigate...Since the latter half of 2010, a new round of inflation has gradually been manifesting in China. The debate regarding whether excess money supply is responsible for this inflation has attracted scholars to investigate the effects of money growth on inflation. In this paper, we use correlation analysis to confirm the comovement between growth of monetary aggregates and inflation. We explore the asymmetric effects of monetary policy on inflation using the Markov regime-switching model The empirical results show that monetary policy can be more effective in curbing inflation in a high inflation state than in boosting the price level in a low inflation state. However, simply tightening the money supply might not be sufficient to suppress the price level To this end, the Chinese Government should adopt other policies, such as supply stabilization policies, to help suppress the price level Our study can help policy-makers to determine the actual economic state and provides some policy implications for the current inflation.展开更多
This paper investigates a time-inconsistent stochastic linear-quadratic problem with regime switching that is characterized via a finite-state Markov chain.Open-loop equilibrium control is studied in this paper whose ...This paper investigates a time-inconsistent stochastic linear-quadratic problem with regime switching that is characterized via a finite-state Markov chain.Open-loop equilibrium control is studied in this paper whose existence is characterized via Markov-chain-modulated forward-backward stochastic difference equations and generalized Riccati-like equations with jumps.展开更多
The equity-indexed annuity (EIA) contract offers a proportional participation in the performance of a specified equity index, in addition to a guaranteed return on the single premium. How to manage the risk of the E...The equity-indexed annuity (EIA) contract offers a proportional participation in the performance of a specified equity index, in addition to a guaranteed return on the single premium. How to manage the risk of the EIA is an important issue. This paper considers the hedging of the EIA. We assume that the parameters of the financial model depend on a continuous-time finite-state Markov chain and the Markov chain is observed, that is the Markov regime switching model. The state of the Markov chain can be interpreted as the state of an economy. Under the regime switching model~ we obtain the risk-minimizing hedging strategy for the EIA.展开更多
Regime switching,which is described by a Markov chain,is introduced in a Markov copula model.We prove that the marginals(X,H^i),i = 1,2,3 of the Markov copula model(X,H) are still Markov processes and have marting...Regime switching,which is described by a Markov chain,is introduced in a Markov copula model.We prove that the marginals(X,H^i),i = 1,2,3 of the Markov copula model(X,H) are still Markov processes and have martingale property.In this proposed model,a pricing formula of credit default swap(CDS) with bilateral counterparty risk is derived.展开更多
Compared with the classical Markov repairable system, the Markov repairable system with stochastic regimes switching introduced in the paper provides a more realistic description of the practical system. The system ca...Compared with the classical Markov repairable system, the Markov repairable system with stochastic regimes switching introduced in the paper provides a more realistic description of the practical system. The system can be used to model the dynamics of a repairable system whose performance regimes switch according to the external conditions. For example, to satisfy the demand variation that is typical for the power and communication systems and reduce the cost, these systems usually adjust their operating regimes. The transition rate matrices under distinct operating regimes are assumed to be different and the sojourn times in distinct regimes are governed by a finite state Markov chain. By using the theory of Markov process, Ion channel theory, and Laplace transforms, the up time of the system are studied. A numerical example is given to illustrate the obtained results. The effect of sojourn times in distinct regimes on the availability and the up time are also discussed in the numerical example.展开更多
The structural changes brought about by shale oil revolution have inspired this paper of which the aim is to analyze the potential asymmetries related to the determinants of crude oil production in the USA.Thus,using ...The structural changes brought about by shale oil revolution have inspired this paper of which the aim is to analyze the potential asymmetries related to the determinants of crude oil production in the USA.Thus,using a Markov-switching dynamic regression model in which parameters change when oil production moves from one regime to the other,it is found that for both oil production and oil relative importance,the regime that was dominant during the 1980s and the early 1990s when oil production in the USA was substantially high is the same regime that has once again become dominant in the decade corresponding to the shale oil revolution.Furthermore,the study reveals the existence of asymmetries in the relationship between US crude oil production and both manufacturing production and the consumer price index.Asymmetries are also found in the relationship between the relative importance US crude oil and manufacturing production.Finally,it is found that the intercept and the variance parameter also vary from one regime to the other,thus justifying the use of regime-dependent models.展开更多
The main purpose of this thesis is in analyzing and empirically simulating risk minimizing European foreign exchange option pricing and hedging strategy when the spot foreign exchange rate is governed by a Markov-modu...The main purpose of this thesis is in analyzing and empirically simulating risk minimizing European foreign exchange option pricing and hedging strategy when the spot foreign exchange rate is governed by a Markov-modulated jump-diffusion model. The domestic and foreign money market interest rates, the drift and the volatility of the exchange rate dynamics all depend on a continuous-time hidden Markov chain which can be interpreted as the states of a macro-economy. In this paper, we will provide a practical lognormal diffusion dynamic of the spot foreign exchange rate for market practitioners. We employing the minimal martingale measure to demonstrate a system of coupled partial-differential-integral equations satisfied by the currency option price and attain the corresponding hedging schemes and the residual risk. Numerical simulations of the double exponential jump diffusion regime-switching model are used to illustrate the different effects of the various parameters on currency option prices.展开更多
This work develops asymptotically optimal dividend policies to maximize the expected present value of dividends until ruin.Compound Poisson processes with regime switching are used to model the surplus and the switch...This work develops asymptotically optimal dividend policies to maximize the expected present value of dividends until ruin.Compound Poisson processes with regime switching are used to model the surplus and the switching(a continuous-time controlled Markov chain) represents random environment and other economic conditions.Assuming the switching to be fast varying together with suitable conditions,it is shown that the system has a limit that is an average with respect to the invariant measure of a related Markov chain.Under simple conditions,the optimal policy of the limit dividend strategy is a threshold policy.Using the optimal policy of the limit system as a guide,feedback control for the original surplus is then developed.It is demonstrated that the constructed dividend policy is asymptotically optimal.展开更多
This study aims to investigate the tail behavior of Cox-Ingersoll-Ross(CIR) processes with regime switching. An essential difference shown in this study between CIR processes with and without regime switching is that ...This study aims to investigate the tail behavior of Cox-Ingersoll-Ross(CIR) processes with regime switching. An essential difference shown in this study between CIR processes with and without regime switching is that the stationary distribution of those with regime switching may be heavy-tailed. We first provide sharp criteria to justify the existence of a stationary distribution for the CIR process with regime switching, which is applied to study the long-term returns of interest rates. Then, we provide a criterion to identify whether this distribution is heavy-tailed. Our results provide theoretical evidence of the existence of regime switching for interest-rate models based on empirical evidence of a heavy-tailed distribution.展开更多
In this paper, we derive the stochastic maximum principle for optimal control problems of the forward-backward Markovian regime-switching system. The control system is described by an anticipated forward-backward stoc...In this paper, we derive the stochastic maximum principle for optimal control problems of the forward-backward Markovian regime-switching system. The control system is described by an anticipated forward-backward stochastic pantograph equation and modulated by a continuous-time finite-state Markov chain. By virtue of classical variational approach, duality method, and convex analysis, we obtain a stochastic maximum principle for the optimal control.展开更多
If common factors jointly affect country stock markets, it is an indica- tion of global stock market integration. Common factors may affect some markets more/less than other markets, an indication of the degree of glo...If common factors jointly affect country stock markets, it is an indica- tion of global stock market integration. Common factors may affect some markets more/less than other markets, an indication of the degree of global stock market in- tegration/segmentation. In this paper, we study the integration of global stock mar- kets based on the returns on exchange traded funds (ETFs) for the US, Canada, UK, Germany, France, Italy, Australia and Japan. The relationship between country ETF returns and common risk factors may be time-varying across countries, and that favors a regime switching (RS) factor model for the dynamics of the country ETF returns. A RS factor model for the relationship between country ETF returns and common risk factors is fitted to daily data for the period from May 31, 2000 to March 31, 2014. We use the data to test a hierarchy of hypotheses on country ETF returns: (1) common factor exposure across all country ETFs and all regimes; (2) common factor exposure across some country ETFs and all regimes, and (3) common factor exposure across some country ETFs and some regimes. The RS factor model for ETF returns fits the data well and the common factors have variable effects across countries and over regimes展开更多
This work develops near-optimal controls for systems given by differential equations with wideband noise and random switching.The random switching is modeled by a continuous-time,time-inhomogeneous Markov chain.Under ...This work develops near-optimal controls for systems given by differential equations with wideband noise and random switching.The random switching is modeled by a continuous-time,time-inhomogeneous Markov chain.Under broad conditions,it is shown that there is an associated limit problem,which is a switching jump diffusion.Using near-optimal controls of the limit system,we then build controls for the original systems.It is shown that such constructed controls are nearly optimal.展开更多
We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market during 2001–2020.The index is a composite of popular price-based and quantity-based me...We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market during 2001–2020.The index is a composite of popular price-based and quantity-based metrics of liquidity.The composite indices,ob-tained by averaging across different metrics and by applying the principal component analysis,respectively,both point to a better liquidity condition after 2010.Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial mar-ket volatility,but display fewer correlations with global macrofinan-cial indicators.Our findings suggest that the further deepening of the government bond market would support domestic financial stability and monetary operations down the road.展开更多
The present study investigates the influence of international oil prices on China's stock market returns across 29 different industries. The paper attempts to account for any structural breaks and nonlinearity in thi...The present study investigates the influence of international oil prices on China's stock market returns across 29 different industries. The paper attempts to account for any structural breaks and nonlinearity in this relationship. The results reveal that the effect of changes in the international price of oil on stock returns differs substantially across industries. The stock returns of the coal chemical mining and oil industries are found to be positively affected by crude oil price movements. Conversely, electronics, food manufacturing, general equipment, pharmaceuticals, retail rubber and vehicle industries are found to be negatively affected by movements in the price of crude oil. The results of the estimations also suggest that the majority of Chinese industries have been significantly affected by oil prices since 2004. The influence of international oil prices on Chinese stocks also has a stronger effect in the presence of high volatility but the effect varies across industries.展开更多
基金supported by the Key Projects of Statistics Bureau of Zhejiang Province(No.23TJZZ17)the Humanities and Social Sciences Program of Ministry of Education of China(No.21YJA910005)。
文摘This paper is concerned with the valuation of single and double barrier knock-out call options in a Markovian regime switching model with specific rebates.The integral formulas of the rebates are derived via matrix Wiener-Hopf factorizations and Fourier transform techniques,also,the integral representations of the option prices are constructed.Moreover,the first-passage time density functions in two-state regime model are derived.As applications,several numerical algorithms and numerical examples are presented.
基金support from the National Social Science Foundation of China(Grant No.10zd&006)the National Natural Science Foundation of China(Grant No.70971055)
文摘Since the latter half of 2010, a new round of inflation has gradually been manifesting in China. The debate regarding whether excess money supply is responsible for this inflation has attracted scholars to investigate the effects of money growth on inflation. In this paper, we use correlation analysis to confirm the comovement between growth of monetary aggregates and inflation. We explore the asymmetric effects of monetary policy on inflation using the Markov regime-switching model The empirical results show that monetary policy can be more effective in curbing inflation in a high inflation state than in boosting the price level in a low inflation state. However, simply tightening the money supply might not be sufficient to suppress the price level To this end, the Chinese Government should adopt other policies, such as supply stabilization policies, to help suppress the price level Our study can help policy-makers to determine the actual economic state and provides some policy implications for the current inflation.
基金the National Key R&D Program of China under Grant No.2018YFA0703800the National Natural Science Foundation of China under Grant Nos.61773222,61877057 and 61973172。
文摘This paper investigates a time-inconsistent stochastic linear-quadratic problem with regime switching that is characterized via a finite-state Markov chain.Open-loop equilibrium control is studied in this paper whose existence is characterized via Markov-chain-modulated forward-backward stochastic difference equations and generalized Riccati-like equations with jumps.
基金Supported by National Natural Science Foundation of China(11231005,11301189)Humanity and Social Science Youth Foundation of Ministry of Education of China(12YJC910006,12YJC910009)+4 种基金Doctoral Program Foundation of the Ministry of Education of China(20130076120007,20110076110004)Shanghai Municipal Natural Science Foundation(12ZR1408300)Program of Shanghai Subject Chief Scientist(14XD1401600)the 111 Project(B14019)Zhejiang Provincial Natural Science Foundation of China(LQ12A01006)
文摘The equity-indexed annuity (EIA) contract offers a proportional participation in the performance of a specified equity index, in addition to a guaranteed return on the single premium. How to manage the risk of the EIA is an important issue. This paper considers the hedging of the EIA. We assume that the parameters of the financial model depend on a continuous-time finite-state Markov chain and the Markov chain is observed, that is the Markov regime switching model. The state of the Markov chain can be interpreted as the state of an economy. Under the regime switching model~ we obtain the risk-minimizing hedging strategy for the EIA.
基金Supported by Jiangsu Government Scholarship for Overseas Studiesthe NNSF of China(Grant Nos.11401419,11301369,11371274)+1 种基金the CPSF(2014M561453)the NSF of Jiangsu Province(Grant Nos.BK20140279,BK20130260)
文摘Regime switching,which is described by a Markov chain,is introduced in a Markov copula model.We prove that the marginals(X,H^i),i = 1,2,3 of the Markov copula model(X,H) are still Markov processes and have martingale property.In this proposed model,a pricing formula of credit default swap(CDS) with bilateral counterparty risk is derived.
基金supported by the National Natural Science Foundation of China (71071020 60705036)Beijing Excellent Doctoral Dissertation Instructor Project of Humanities and Social Sciences(yb20091000701)
文摘Compared with the classical Markov repairable system, the Markov repairable system with stochastic regimes switching introduced in the paper provides a more realistic description of the practical system. The system can be used to model the dynamics of a repairable system whose performance regimes switch according to the external conditions. For example, to satisfy the demand variation that is typical for the power and communication systems and reduce the cost, these systems usually adjust their operating regimes. The transition rate matrices under distinct operating regimes are assumed to be different and the sojourn times in distinct regimes are governed by a finite state Markov chain. By using the theory of Markov process, Ion channel theory, and Laplace transforms, the up time of the system are studied. A numerical example is given to illustrate the obtained results. The effect of sojourn times in distinct regimes on the availability and the up time are also discussed in the numerical example.
文摘The structural changes brought about by shale oil revolution have inspired this paper of which the aim is to analyze the potential asymmetries related to the determinants of crude oil production in the USA.Thus,using a Markov-switching dynamic regression model in which parameters change when oil production moves from one regime to the other,it is found that for both oil production and oil relative importance,the regime that was dominant during the 1980s and the early 1990s when oil production in the USA was substantially high is the same regime that has once again become dominant in the decade corresponding to the shale oil revolution.Furthermore,the study reveals the existence of asymmetries in the relationship between US crude oil production and both manufacturing production and the consumer price index.Asymmetries are also found in the relationship between the relative importance US crude oil and manufacturing production.Finally,it is found that the intercept and the variance parameter also vary from one regime to the other,thus justifying the use of regime-dependent models.
基金Supported by the National Natural Science Foundation of China(No.11301454,No.71771147 and No.71201100)the Jiangsu Qing Lan Project for Excellent Young Teachers in University(2014)+1 种基金Six Talent Peaks Project in Jiangsu Province(2016-JY-081)the Natural Science Foundation for Colleges and Universities in Jiangsu Province(17KJB110020)
文摘The main purpose of this thesis is in analyzing and empirically simulating risk minimizing European foreign exchange option pricing and hedging strategy when the spot foreign exchange rate is governed by a Markov-modulated jump-diffusion model. The domestic and foreign money market interest rates, the drift and the volatility of the exchange rate dynamics all depend on a continuous-time hidden Markov chain which can be interpreted as the states of a macro-economy. In this paper, we will provide a practical lognormal diffusion dynamic of the spot foreign exchange rate for market practitioners. We employing the minimal martingale measure to demonstrate a system of coupled partial-differential-integral equations satisfied by the currency option price and attain the corresponding hedging schemes and the residual risk. Numerical simulations of the double exponential jump diffusion regime-switching model are used to illustrate the different effects of the various parameters on currency option prices.
基金supported in part by the National Science Foundation under DMS-0907753supported in part by the National Natural Science Foundation of China (No.70871055)+1 种基金supported in part by the National Science Foundation under DMS-0603287supported in part by Research Grants Council of HKSAR (Project No:HKU706209P)
文摘This work develops asymptotically optimal dividend policies to maximize the expected present value of dividends until ruin.Compound Poisson processes with regime switching are used to model the surplus and the switching(a continuous-time controlled Markov chain) represents random environment and other economic conditions.Assuming the switching to be fast varying together with suitable conditions,it is shown that the system has a limit that is an average with respect to the invariant measure of a related Markov chain.Under simple conditions,the optimal policy of the limit dividend strategy is a threshold policy.Using the optimal policy of the limit system as a guide,feedback control for the original surplus is then developed.It is demonstrated that the constructed dividend policy is asymptotically optimal.
基金National Natural Science Foundation of China (Grant Nos. 11771327, 11431014 and 11831014)。
文摘This study aims to investigate the tail behavior of Cox-Ingersoll-Ross(CIR) processes with regime switching. An essential difference shown in this study between CIR processes with and without regime switching is that the stationary distribution of those with regime switching may be heavy-tailed. We first provide sharp criteria to justify the existence of a stationary distribution for the CIR process with regime switching, which is applied to study the long-term returns of interest rates. Then, we provide a criterion to identify whether this distribution is heavy-tailed. Our results provide theoretical evidence of the existence of regime switching for interest-rate models based on empirical evidence of a heavy-tailed distribution.
文摘In this paper, we derive the stochastic maximum principle for optimal control problems of the forward-backward Markovian regime-switching system. The control system is described by an anticipated forward-backward stochastic pantograph equation and modulated by a continuous-time finite-state Markov chain. By virtue of classical variational approach, duality method, and convex analysis, we obtain a stochastic maximum principle for the optimal control.
文摘If common factors jointly affect country stock markets, it is an indica- tion of global stock market integration. Common factors may affect some markets more/less than other markets, an indication of the degree of global stock market in- tegration/segmentation. In this paper, we study the integration of global stock mar- kets based on the returns on exchange traded funds (ETFs) for the US, Canada, UK, Germany, France, Italy, Australia and Japan. The relationship between country ETF returns and common risk factors may be time-varying across countries, and that favors a regime switching (RS) factor model for the dynamics of the country ETF returns. A RS factor model for the relationship between country ETF returns and common risk factors is fitted to daily data for the period from May 31, 2000 to March 31, 2014. We use the data to test a hierarchy of hypotheses on country ETF returns: (1) common factor exposure across all country ETFs and all regimes; (2) common factor exposure across some country ETFs and all regimes, and (3) common factor exposure across some country ETFs and some regimes. The RS factor model for ETF returns fits the data well and the common factors have variable effects across countries and over regimes
基金supported in part by the National Science Foundation under DMS-1207667supported in part by NSFC and RFDP
文摘This work develops near-optimal controls for systems given by differential equations with wideband noise and random switching.The random switching is modeled by a continuous-time,time-inhomogeneous Markov chain.Under broad conditions,it is shown that there is an associated limit problem,which is a switching jump diffusion.Using near-optimal controls of the limit system,we then build controls for the original systems.It is shown that such constructed controls are nearly optimal.
文摘We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market during 2001–2020.The index is a composite of popular price-based and quantity-based metrics of liquidity.The composite indices,ob-tained by averaging across different metrics and by applying the principal component analysis,respectively,both point to a better liquidity condition after 2010.Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial mar-ket volatility,but display fewer correlations with global macrofinan-cial indicators.Our findings suggest that the further deepening of the government bond market would support domestic financial stability and monetary operations down the road.
基金The authors acknowledge the financial support of the National Natural Science Foundation of China (No. 71173088).
文摘The present study investigates the influence of international oil prices on China's stock market returns across 29 different industries. The paper attempts to account for any structural breaks and nonlinearity in this relationship. The results reveal that the effect of changes in the international price of oil on stock returns differs substantially across industries. The stock returns of the coal chemical mining and oil industries are found to be positively affected by crude oil price movements. Conversely, electronics, food manufacturing, general equipment, pharmaceuticals, retail rubber and vehicle industries are found to be negatively affected by movements in the price of crude oil. The results of the estimations also suggest that the majority of Chinese industries have been significantly affected by oil prices since 2004. The influence of international oil prices on Chinese stocks also has a stronger effect in the presence of high volatility but the effect varies across industries.