Perpetual American maximum options with Markov-modulated dynamics
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In this paper, we deal with the valuation problem of two-asset perpetual American maximum options with Markov-modulated dynamics, in which the asset price processes are driven by a hidden Markov chain. We give the optimal stopping time rule and derive explicit pricing formulas by solving a series of variational inequalities. A proof of optimality for the result is performed in the end.
Keywordsperpetual options Markov-modulated dynamics optimal stopping time Markov chain
MSC90A09 60J27 35K20 60H30 60J60
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