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Valuation and Hedging Strategy of Currency Options under Regime-Switching Jump-Diffusion Model
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作者 Shou-ting CHEN Xun-di DIAO Ai-lin ZHU 《Acta Mathematicae Applicatae Sinica》 SCIE CSCD 2017年第4期871-892,共22页
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
关键词 spot foreign exchange rate regime switching jump0diffusion processes minimal martingale mea-sure European currency options pricing and hedging strategy.
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