Mikael Gunnarsson, presenterar sitt examensarbete

Call Option Pricing in the Regime Swithching Lévy Market

Abstract

The need for models which can calibrate market prices of
options has been one of the main thrusts behind the generalization of
the Black-Scholes model. In this master's thesis Lévy processes and
hidden Markov models are combined into two different regime switching
Lévy markets, the regime switching Black-Scholes market and the regime
switching NIG market. These two markets are estimated from stock and
stock index data and after having developed a pricing method for call
options they are calibrated to market prices of and stock index call
options.

Both the regime switching Black-Scholes market and the regime
switching NIG market seem promising with regard to call option
pricing, but further research is needed to draw any universal
conclusions.