Finite maturity American-style stock loans with regime-switching volatility
Keywords:stock loans, regime-switching, PDE approach, semi-analytic method, volatility
We study finite maturity American-style stock loans under a two-state regime-switching economy. We present a thorough semi-analytic discussion of the optimal redeeming prices, the values and the fair service fees of the stock loans, under the assumption that the volatility of the underlying is in a state of uncertainty. Numerical experiments are carried out to show the effects of the volatility regimes and other loan parameters.