Markov Regime Switching of Stochastic Volatility Lévy Model on Approximation Mode

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

[学科分类] 应用数学