Pricing and hedging performance on pegged FX markets based on a regime switching model

@article{Zhang2019PricingAH,
  title={Pricing and hedging performance on pegged FX markets based on a regime switching model},
  author={Yunbo Zhang and Samuel Drapeau},
  journal={Quantitative Finance},
  year={2019},
  volume={21},
  pages={305 - 322}
}
This paper investigates the hedging performance of a pegged foreign exchange market in a regime switching (RS) model introduced by Drapeau et al. We compare two prices, an exact solution and first-order approximation and provide bounds for the error. We provide exact RS delta, approximate RS delta as well as mean variance hedging strategies for this specific model and compare their performance. To improve the efficiency of the pricing and calibration procedure, a Fourier approach to this regime… 
1 Citations
On Model Robustness of the Regime Switching Approach for Pegged Foreign Exchange Markets
TLDR
It turns out that the relevant resulting characteristics -- probability of a depegging before maturity, appreciation/depreciation at the de pegging time as well as post-depegging volatility -- are strongly robust in terms of model choice for this regime switching approach.

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