This paper investigates the pricing of CatEPuts under
a Markovian regime-switching jump-diffusion model. The parameters of this model,
including the risk-free interest rate, the appreciation rate and the volatility
of the clients' equity, are modulated by a continuous-time, finite-state, observable
Markov chain. An equivalent martingale measure is selected by employing the
regime-switching Esscher transform. The fast Fourier transform (FFT) technique
is applied to price the CatEPuts. In a two-state Markov chain case, numerical
example is presented to illustrate the practical implementation of the model.
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CHENG GongPin, FAN Kun. Valuation of CatEPuts with Regime Switching. CHINESE JOURNAL OF APPLIED PROBABILITY AND STATIST, 2017, 34(3): 285-296.