Statistics and Risk Management and MMA AEIO and MMA Financial Mathematics Seminar - 11/11/2015

Wednesday, 11 November 2015, 2:30 p.m.

Lecturer: Professor Pedro Mota, Centro de Matemática e Aplicações (CMA), FCT, UNL e Departamento de Matemática, FCT, UNL

Title: "Option pricing in processes with regimes"

Local: Room 1.3, Edifício VII

Faculdade de Ciências e Tecnologia, Quinta da Torre, Caparica

Abstract: We present a generalized Black-Scholes model with a regime switching diffusion as the law of the risky asset. The regime switching is driven by the underlying process, for instance, the change in the diffusion drift and volatility can occur when the process trajectory touches or crosses some kind of threshold. Estimation procedures for the thresholds and for the regime parameters of the diffusion are reviewed and formulas for pricing European options are presented.