Abstract
AbstractThis paper investigates the volatility in regime-switching models formulated based on the geometric Brownian motion with its drift and volatility factors randomized with Markov chains. By developing explicit formulas about occupation time of Markov chains, we analysis the difference between global volatility of this model and the volatility caused by Brownian randomness, in order to measure the volatility caused by regime-switching after justifying its existence. Utilizing this structure of volatility, we optimize the methods of volatility parameters estimation.
Publisher
Cambridge University Press (CUP)
Subject
Industrial and Manufacturing Engineering,Management Science and Operations Research,Statistics, Probability and Uncertainty,Statistics and Probability
Cited by
2 articles.
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