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arXiv · 1407.5091

An exact and explicit formula for pricing Asian options with regime switching

Leunglung Chan·Song-Ping Zhu
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Abstract

This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of the underlying risky asset depend on unobservable states of the economy described by a continuous-time hidden Markov process. We derive the exact, explicit and closed-form solutions for European-style Asian options in a two-state regime switching model.

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Leunglung Chan, Song-Ping Zhu. 2014-07-18. An exact and explicit formula for pricing Asian options with regime switching. https://arxiv.org/abs/1407.5091

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