Skip to main content
placeholder image

Parameter estimation of a regime-switching model using an inverse stieltjes moment approach

Chapter


Download full-text (Open Access)

Abstract


  • We address the problem of recovering the time-dependent parameters

    of the Black-Scholes option pricing model when the underlying stock

    price dynamics are modelled by a finite-state, continuous-time Markov

    chain. The coupled system of Dupire-type partial differential equations

    is derived and formulated as an inverse Stieltjes moment problem. We

    provide numerical illustration on how to apply our method to simulated

    financial data. The accuracy of the model parameter estimation is examined

    and sensitivity analyses are included to study the behaviour of

    the estimated results when model parameters are varied.

UOW Authors


Publication Date


  • 2012

Citation


  • Xi, X., Rodrigo, M. R. & Mamon, R. S. (2012). Parameter estimation of a regime-switching model using an inverse stieltjes moment approach. In S. N. Cohen, D. Madan, T. Kuen. Siu & H. Yang (Eds.), Stochastic processes, finance and control : a festschrift in honor of Robert J. Elliott (pp. 549-569). Singapore: World scientific.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1692&context=eispapers

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers/686

Book Title


  • Stochastic processes, finance and control : a festschrift in honor of Robert J. Elliott

Start Page


  • 549

End Page


  • 569

Abstract


  • We address the problem of recovering the time-dependent parameters

    of the Black-Scholes option pricing model when the underlying stock

    price dynamics are modelled by a finite-state, continuous-time Markov

    chain. The coupled system of Dupire-type partial differential equations

    is derived and formulated as an inverse Stieltjes moment problem. We

    provide numerical illustration on how to apply our method to simulated

    financial data. The accuracy of the model parameter estimation is examined

    and sensitivity analyses are included to study the behaviour of

    the estimated results when model parameters are varied.

UOW Authors


Publication Date


  • 2012

Citation


  • Xi, X., Rodrigo, M. R. & Mamon, R. S. (2012). Parameter estimation of a regime-switching model using an inverse stieltjes moment approach. In S. N. Cohen, D. Madan, T. Kuen. Siu & H. Yang (Eds.), Stochastic processes, finance and control : a festschrift in honor of Robert J. Elliott (pp. 549-569). Singapore: World scientific.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1692&context=eispapers

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers/686

Book Title


  • Stochastic processes, finance and control : a festschrift in honor of Robert J. Elliott

Start Page


  • 549

End Page


  • 569