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Markov and semi‐Markov option pricing models with arbitrage possibility

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  • Jacques Janssen
  • Raimondo Manca
  • Giuseppe Di Biase

Abstract

The aim of this paper is the presentation of new models for option pricing that are discrete in time and in the framework of Markov and semi‐Markov processes as an alternative to the classical Cox–Rubinstein model, and that also allow the possibility of arbitrage. Both cases of European and American options are considered and possible extensions are given. © 1997 by John Wiley & Sons, Ltd.

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  • Jacques Janssen & Raimondo Manca & Giuseppe Di Biase, 1997. "Markov and semi‐Markov option pricing models with arbitrage possibility," Applied Stochastic Models and Data Analysis, John Wiley & Sons, vol. 13(2), pages 103-113, June.
    • Handle: RePEc:wly:apsmda:v:13:y:1997:i:2:p:103-113
    DOI: 10.1002/(SICI)1099-0747(199706)13:23.0.CO;2-Z
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