Research Workshop and Conference on
Statistical methods in finance
July 13-17, 2015
Chennai, India

Organized by

Chennai Mathematical Institute
Indian Statistical Institute, Chennai

Statistical Inference in a Regime Switching Market

Anindya Goswami, IISER, Pune

Abstract: In an observed semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition rate, to meet the existence of classical solution of the modified price equation, the estimator is approximated in the class of smooth functions and furthermore, the convergence is established. Later, the existence of the solution of the modified price equation is verified and the point-wise convergence of such approximation of option price is proved.