Modeling options with regime–switching modelکنفرانس بین المللی مهندسی صنایع و مدیریت
In this paper, we attempt to model the stock and derivatives markets in a manner that will enable us to construct a model that also describes certain market failures. Thus, we model the price behavior of the base asset (stocks) with a dynamic regime–switching model first using Markov processes and then using the concept of economic regimes. By applying an option to this asset, we obtain a dynamic and new model for the derivatives market. In addition, by applying certain environmental changes in the oil base stock model, we are able to model oil field derivatives. Moreover, we consider the Markov regime–switching model in the electricity markets. The goal of this section is to formulate a joint model for spot and futures prices. Based on our research, we present a general multi–factor affine distribution model merged with a finite k–state Markov regime–switching process that includes the stylized characteristics of both spot and futures prices. Applied regime–switching models have not often been considered in the literature. With respect to the pricing of most financial elements influenced by global markets, we must pay special attention to the institutions that are responsible for pricing important elements in this area, such as oil or electricity, to avoid the direct effect of these markets.<\div>
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