Continuous Time Regime Switching Models and Applications in Estimating Processes with Stochastic Volatility and Jumps

  title={Continuous Time Regime Switching Models and Applications in Estimating Processes with Stochastic Volatility and Jumps},
  author={Kyriakos Chourdakis},
A regime switching model in continuous time is introduced where a variety of jumps are allowed in addition to the diffusive component. The characteristic function of the process is derived in closed form, and is subsequently employed to create the likelihood function. In addition, standard results of the option pricing literature can be employed in order to compute derivative prices. To this end, the relationship between the physical and the risk adjusted probability measure is explored. The… CONTINUE READING

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