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Solving systems of PIDE's coming from regime switching jump diffusion models

APR 27, 2012 | 4:00 PM TO 6:00 PM

Details

WHERE:

The Graduate Center
365 Fifth Avenue

WHEN:

April 27, 2012: 4:00 PM-6:00 PM

ADMISSION:

Free

SPONSOR:

ITS Applied Mathematics

Description

Initiative for the Theoretical Sciences (ITS) sponsored Applied Mathematics Seminar

Solving systems of PIDE's coming from regime switching jump diffusion models

In this talk we consider an underlying model where constant parameters are switching according to a continuous time Markov process. The times of switch are modeled using a Cox process. In addition the model features jumps. We examine the option pricing problem when the stock process follows this process and we find that a tightly coupled system of partially integro-differential equations needs to be solved. We exemplify the solution on several case studies. We also analyze two types of jump distributions the log double exponential due to Kou and a new distribution which we call a log normal mixture which seems to be useful in precisely modeling the jumps and distinguishing them from sampled variability.