Integro-Differential Equations for Option Prices in Markov Switching Exponential Levy Models
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Abstract
We consider a Markov switching exponential Levy model in which the underlying economy switches between a finite number of states. The switching is modeled by a hidden Markov chain. We explore the link between options prices in Markov switching exponential Levy models and the related partial integro-differential equations in the case of European options.
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