Good-deal bounds in a regime-switching diffusion market

Research output: Chapter in Book/Report/Conference proceedingConference contribution


We consider the pricing of a maturity guarantee, which is equivalent to the pricing of a European put option, in a regime-switching market model. Regime-switching market models have been empirically shown to fit long-term stockmarket data better than many other models.

However, since a regime-switching market is incomplete, there is no unique price for the maturity guarantee. We extend the good-deal pricing bounds idea to the regime-switching market model. This allows us to obtain a reasonable range of prices for the maturity guarantee, by excluding those prices which imply a Sharpe Ratio which is too high. The range of prices can be used as a plausibility check on the chosen price of a maturity guarantee.
Original languageEnglish
Title of host publicationActuarial and Financial Mathematics Conference
Subtitle of host publicationInterplay between Finance and Insurance
PublisherKoninklijke Vlaamse Academie van Belgie
Number of pages12
ISBN (Print)978 90 6569 087 6
Publication statusPublished - 2011
EventActuarial and Financial Mathematics Conference Interplay between Finance and Insurance - Belguim, Brussels, Belgium
Duration: 6 Feb 20147 Feb 2014


ConferenceActuarial and Financial Mathematics Conference Interplay between Finance and Insurance


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