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Lattice Methods For The Valuation Of Options With Regime Switching, Atul Sancheti
Lattice Methods For The Valuation Of Options With Regime Switching, Atul Sancheti
UNLV Theses, Dissertations, Professional Papers, and Capstones
In this thesis, we have developed two numerical methods for evaluating option prices under the regime switching model of stock price processes: the Finite Difference lattice method and the Monte Carlo lattice method.
The Finite Difference lattice method is based on the explicit finite difference scheme for parabolic problems. The Monte Carlo lattice method is based on the simulation of the Markov chain. The advantage of these methods is their flexibility to compute the option prices for any given stock price at any given time. Numerical examples are presented to examine these methods. It has been shown that the proposed …