Author(s)

Guoshuai Wang, Dianli Zhao

College of Science, University of Shanghai for Science and Technology, Shanghai, China.

In this paper, we present a stock model with Markov switching in the uncertainty markets, where the parameters of drift and volatility change according to the states of a Markov process. To price the option, we firstly establish a risk-neutral probability based on the uncertain measure given by Liu. Then a closed form of the European option pricing formula is obtained by applying the Laplace transforms and the inverse Laplace transforms.

Uncertainty Theory, Markov Process, Laplace Transform, Put-Call Parity, Option Pricing

Wang, G. and Zhao, D. (2015) Option Pricing with Markov Switching in Uncertainty Markets. Open Journal of Applied Sciences, 5, 191-198. doi: 10.4236/ojapps.2015.55019.