On pricing barrier control in a regime-switching regulated market

Zheng Han, Yaozhong Hu, Chihoon Lee

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We study a pricing barrier control problem in a regime-switching regulated market. In doing so, we analyze a class of one-dimensional reflected regime-switching diffusion processes. Such diffusion models arise as the key approximating processes in a regulated financial market system with the presence of regime changes. Our main goal is to determine optimal pricing barriers as solutions of long-run average mean–variance optimization problems. More precisely, the optimal barrier, if exists, will be to maximize the long-run average expected return (i.e. steady-state mean) subject to a selected level of long-run average risk (i.e. steady-state variance).

Original languageEnglish
Pages (from-to)491-499
Number of pages9
JournalQuantitative Finance
Volume19
Issue number3
DOIs
StatePublished - 4 Mar 2019

Keywords

  • Ergodic control
  • Mean–variance optimization
  • Optimal barriers
  • Reflected diffusions
  • Regime-switching
  • Regulated market

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