Browsing by Author "Anderson, Michael"

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    Option pricing using hidden Markov models
    (2006) Anderson, Michael; Guo, Renkuan
    This work will present an option pricing model that accommodates parameters that vary over time, whilst still retaining a closed-form expression for option prices: the Hidden Markov Option Pricing Model. This is possible due to the macro-structure of this model and provides the added advantage of ensuring efficient computation of option prices. This model turns out to be a very natural extension to the Black-Scholes model, allowing for time-varying input parameters.