OJAppS  Vol.5 No.5 , May 2015
Option Pricing with Markov Switching in Uncertainty Markets
ABSTRACT
In this paper, we present a stock model with Markov switching in the uncertainty markets, where the parameters of drift and volatility change according to the states of a Markov process. To price the option, we firstly establish a risk-neutral probability based on the uncertain measure given by Liu. Then a closed form of the European option pricing formula is obtained by applying the Laplace transforms and the inverse Laplace transforms.

Cite this paper
Wang, G. and Zhao, D. (2015) Option Pricing with Markov Switching in Uncertainty Markets. Open Journal of Applied Sciences, 5, 191-198. doi: 10.4236/ojapps.2015.55019.
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