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A Correction Note on: When the “Bull” Meets the “Bear”—A First Passage Time Problem for a Hidden Markov Process

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  • Peter Hieber

    (Technische Universität München)

Abstract

Guo (Methodol Comput Appl Probab 3(2):135–143, 2001a) derived the Laplace transform of the first-passage time in a 2-state Markov-switching model and gave one of the pioneering works improving the analytical tractability of Markov-switching models. However, the Laplace transforms in her paper are wrong. This short note provides the correct expression and an alternative proof using the matrix Wiener–Hopf technique.

Suggested Citation

  • Peter Hieber, 2014. "A Correction Note on: When the “Bull” Meets the “Bear”—A First Passage Time Problem for a Hidden Markov Process," Methodology and Computing in Applied Probability, Springer, vol. 16(3), pages 771-776, September.
    • Handle: RePEc:spr:metcap:v:16:y:2014:i:3:d:10.1007_s11009-013-9355-6
    DOI: 10.1007/s11009-013-9355-6
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    References listed on IDEAS

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    1. Boyle, Phelim & Draviam, Thangaraj, 2007. "Pricing exotic options under regime switching," Insurance: Mathematics and Economics, Elsevier, vol. 40(2), pages 267-282, March.
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    6. Z. Jiang & M. R. Pistorius, 2008. "On perpetual American put valuation and first-passage in a regime-switching model with jumps," Papers 0803.2302, arXiv.org.
    7. Kim, Mi Ae & Jang, Bong-Gyu & Lee, Ho-Seok, 2008. "A first-passage-time model under regime-switching market environment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2617-2627, December.
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