Physical Sciences and Mathematics Commons^™

Modelling Asset Prices Under Regime Switching Diffusions Via First Passage Time, Xiaojing Xi

Theses and Dissertations (Comprehensive)

In this thesis we focus on the development of a new class of stochastic models for asset price processes and their application to option pricing and hedging. The asset price process involves analytical treatments for calculating first-hitting (or first-passage) times for a regular diffusion with killing in combination with Markov state-switching. The dynamics is naturally dictated by the underlying diffusion process itself rather than arising from some addition exogenous process. To date, this class of asset pricing models appears to be novel in the literature and, moreover, offers a significant to the standard geometric Brownian motion commonly used in the …