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Characteristic functions and option valuation in a Markov chain market. (English) Zbl 1228.91069

Summary: We introduce an approach for valuing some path-dependent options in a discrete-time Markov chain market based on the characteristic function of a vector of occupation times of the chain. A pricing kernel is introduced and analytical formulas for the prices of Asian options and occupation time call options are derived.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
91G80 Financial applications of other theories
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