| Article ID: | iaor2006875 |
| Country: | Netherlands |
| Volume: | 33 |
| Issue: | 6 |
| Start Page Number: | 581 |
| End Page Number: | 586 |
| Publication Date: | Nov 2005 |
| Journal: | Operations Research Letters |
| Authors: | Mamon Rogemar S., Rodrigo Marianito R. |
| Keywords: | markov processes |
We provide closed-form solutions for European option values when the dynamics of both the short rate and volatility of the underlying price process are modulated by a continuous-time Markov chain with a finite number of “economic states”. Extensions involving dividends, currencies and cost of carry are further explored.