Pricing gold options under Markov-modulated jump-diffusion processes

Lin, Shih-Kuei; Lian, Yu-Min; Liao, Szu-Lang

doi:10.1080/09603107.2014.914142

Cited by 6 publications

(2 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…These aforementioned studies examined the role of jump risk premia in the pricing of financial instruments and provided valuable insights into the dynamics of financial markets. Furthermore, Lin et al ( 2014 ) developed a generalized pricing formula for European gold options via the Esscher transform, which considers the Markov-modulated jump-diffusion process. The study identified varying jump behavior of gold prices across different periods.…”

Section: Literature Reviewmentioning

confidence: 99%

Upside and downside correlated jump risk premia of currency options and expected returns

Chang

Chen

et al. 2023

Financ Innov

Self Cite

View full text Add to dashboard Cite

This research explores upside and downside jumps in the dynamic processes of three rates: domestic interest rates, foreign interest rates, and exchange rates. To fill the gap between the asymmetric jump in the currency market and the current models, a correlated asymmetric jump model is proposed to capture the co-movement of the correlated jump risks for the three rates and identify the correlated jump risk premia. The likelihood ratio test results show that the new model performs best in 1-, 3-, 6-, and 12-month maturities. The in- and out-of-sample test results indicate that the new model can capture more risk factors with relatively small pricing errors. Finally, the risk factors captured by the new model can explain the exchange rate fluctuations for various economic events.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Upside and downside correlated jump risk premia of currency options and expected returns

Chang

Chen

et al. 2023

Financ Innov

Self Cite

View full text Add to dashboard Cite

show abstract

“…Hansen and Poulsen (2000), Song, Yin, and Zhang (2006), Zhang, Elliott, and Siu (2012) also consider regime-switching jump-diffusion processes governed by random arrivals from a Poisson process. For recent applications on Markov-modulated jump-diffusion processes, see Elliott and Siu (2010) for quantitative risk management, Siu (2010) for bond pricing, Boyarchenko and Boyarchenko (2011) for American options pricing, or Lin, Lian, and Lia (2014) for the pricing of gold options. Yin, Song, and Zhang (2005), Xi (2008), Yin and Xi (2010) study further theoretical properties and numerical solutions of jump-diffusion processes with a random switching device.…”

Section: Introductionmentioning

confidence: 99%

On the estimation of regime-switching Lévy models

Chevallier

Goutte

2017

Studies in Nonlinear Dynamics &Amp; Econometrics

View full text Add to dashboard Cite

Abstract:The regime-switching Lévy model combines jump-diffusion under the form of a Lévy process, and Markov regime-switching where all parameters depend on the value of a continuous time Markov chain. We start by giving general stochastic results. Estimation is performed following a two-step procedure. The EM-algorithm is extended to this new class of jump-diffusion regime-switching models. Simulations are proposed, alongside an empirical application dedicated to the study of financial and commodity time series. When comparing the results with (i) non regime-switching models, and (ii) continuous regime-switching models (where the Lévy process is replaced by a classic Brownian motion), the Lévy regime-switching model outperforms other competitors.

show abstract