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Title: Markovian regime-switching market completion using additional Markov jump assets
Related: IMA journal of management mathematics, Vol. 23, No. 3, (2012), p.283-305
DOI: 10.1093/imaman/dpr018
Publisher: Oxford University Press
Date: 2012
Author/Creator: Zhang, Xin
Author/Creator: Elliott, Robert J
Author/Creator: Siu, Tak Kuen
Author/Creator: Guo, Junyi
Description: In this paper, we discuss the use of some representation results for double martingales to value and hedge contingent claims in a Markovian regime-switching market. A set of N Markov jump assets is introduced to complete the Markovian regime-switching market. Using a representation for double martingales, we justify the completeness of the enlarged market. An equivalent martingale measure, or price kernel, in the enlarged market is then identified by a measure change. The option pricing formula and the hedging portfolio in the enlarged market is also discussed. Markovian regime-switching marketsdouble martingalesmartingale representationmarket completionmarked point processes.
Description: 23 page(s)
Subject Keyword: double martingales
Subject Keyword: marked point processes
Subject Keyword: market completion
Subject Keyword: Markovian regime-switching markets
Subject Keyword: martingale representation
Resource Type: journal article
Organisation: Macquarie University. Dept. of Applied Finance and Actuarial Studies

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