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2013 Markov Regime Switching of Stochastic Volatility Lévy Model on Approximation Mode
Arthit Intarasit
J. Appl. Math. 2013: 1-9 (2013). DOI: 10.1155/2013/549304

Abstract

This paper deals with financial modeling to describe the behavior of asset returns, through consideration of economic cycles together with the stylized empirical features of asset returns such as fat tails. We propose that asset returns are modeled by a stochastic volatility Lévy process incorporating a regime switching model. Based on the risk-neutral approach, there exists a large set of candidates of martingale measures due to the driving of a stochastic volatility Lévy process in the proposed model which renders the market incomplete in general. We first establish an equivalent martingale measure for the proposed model introduced in risk-neutral version. Regime switching of stochastic volatility Lévy process is employed in an approximation mode for model calibration and the calibration of parameters model done based on EM algorithm. Finally, some empirical results are illustrated via applications to the Bangkok Stock Exchange of Thailand index.

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Arthit Intarasit. "Markov Regime Switching of Stochastic Volatility Lévy Model on Approximation Mode." J. Appl. Math. 2013 1 - 9, 2013. https://doi.org/10.1155/2013/549304

Information

Published: 2013
First available in Project Euclid: 14 March 2014

zbMATH: 06950746
MathSciNet: MR3138964
Digital Object Identifier: 10.1155/2013/549304

Rights: Copyright © 2013 Hindawi

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