Finite maturity American-style stock loans with regime-switching volatility

Xiaoping Lu; Endah R. M. Putri

doi:10.21914/anziamj.v63.15435

Authors

Xiaoping Lu University of Wollongong https://orcid.org/0000-0003-1090-8437
Endah R. M. Putri Institut Teknologi Sepuluh Nopember https://orcid.org/0000-0003-2756-5901

DOI:

https://doi.org/10.21914/anziamj.v63.15435

Keywords:

stock loans, regime-switching, PDE approach, semi-analytic method, volatility

Abstract

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.

doi:10.1017/S1446181121000250

Author Biographies

Xiaoping Lu, University of Wollongong

School of Mathematics and Applied Statistics, University of Wollongong, New South Wales, Australia.

Endah R. M. Putri, Institut Teknologi Sepuluh Nopember

Department of Mathematics, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia.