This seminar will be presented in hybrid mode. The speaker will deliver his talk in person.
Title: Approximations for Black-Scholes model with regime switching
Abstract: We will consider a Black-Scholes model where the volatility may assume n different values which are determined by n-1 different values of the underlying as boundary values for each volatility value. In this sense, this model uses a discontinuous diffusion coefficient. Besides the financial point of view this model is interesting because of the study of boundary interactions for this class of diffusions. I will also present the ideas of the simulation methodology which simply consists of using n skew Brownian motions with drift.
We prove that the rate of convergence of this simulation method is extremely fast.
This is joint work with A. Tanaka (Mitsui Sumitomo Bank)
The talk will be followed by refreshments in the Huxley Common Room at 5pm.