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FINITE MATURITY AMERICAN-STYLE STOCK LOANS WITH REGIME-SWITCHING VOLATILITY

Part of: Mathematical finance

Published online by Cambridge University Press:  19 August 2021

XIAOPING LU Open the ORCID record for XIAOPING LU [Opens in a new window]  and
ENDAH R. M. PUTRI Open the ORCID record for ENDAH R. M. PUTRI [Opens in a new window]
XIAOPING LU*
Affiliation:
School of Mathematics and Applied Statistics, University of WollongongNSW2522, Australia
ENDAH R. M. PUTRI
Affiliation:
Department of Mathematics, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia; e-mail: endahrmp@mathematics.its.ac.id
*
e-mail: xplu@uow.edu.au
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Abstract

We study finite maturity American-style stock loans under a two-state regime-switching economy. We present a thorough semi-analytic discussion of the optimal redeeming prices, the values and the fair service fees of the stock loans, under the assumption that the volatility of the underlying is in a state of uncertainty. Numerical experiments are carried out to show the effects of the volatility regimes and other loan parameters.

Keywords

stock loansregime-switchingPDE approachsemi-analytic methodvolatility

MSC classification

Primary: 91G20: Derivative securities
Type
Research Article
Information
The ANZIAM Journal , Volume 63 , Issue 2 , April 2021 , pp. 163 - 177
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Copyright
© Australian Mathematical Society 2021

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