Dr. Shican Liu, a Researcher of the Base, and Associate Professor Qing Li have published a collaborative paper titled "The impact of volatility regime dynamics on option pricing"in The North American Journal of Economics and Finance.

Founded in 1988, The North American Journal of Economics and Finance is an English-language academic journal in the field of financial economics and is classified as an SSCI Q1 journal.

Abstract: This paper explores the joint impact of stochastic volatility and Markov regime switches on option pricing. Our findings suggest that the interaction between different regimes of stochastic volatility can be adequately captured by expanding the option price asymptotically to the second order. Through our sensitivity analysis, we demonstrate the significance of the volatility level, as reflected in the second order term, in explaining the regime shift in option pricing. Furthermore, numerical and empirical experiments indicate that the adjusted closed-form formula can enhance the accuracy and efficiency of at-the-money option pricing, increasing its viability for practical applications.

Keywords: Volatility risk；Markov regime switching；Regime interaction；Option pricing

Link: The impact of volatility regime dynamics on option pricing - ScienceDirect

Teacher profile

Shican Liu is currently a Lecturer and Master's Supervisor at the Financial Mathematics Teaching and Research Section,Department of Quantitative Economics, School of Statistics and Mathematics, Zhongnan University of Economics and Law.Her primary research focuses on financial engineering, asset pricing,portfolio management,and risk management. Over the past five years, she has published multiple papers as the first author or sole corresponding author in internationally renowned journals such as Quantitative Finance,The North American Journal of Economics and Finance, and Journal of Computational and Applied Mathematics.

Qing Li is currently an Associate Professor and Master's Supervisor at the Financial Mathematics Teaching and Research Section,Department of Mathematics and Quantitative Economics, School of Statistics and Mathematics,Zhongnan University of Economics and Law.He has published numerous papers in core journals at home and abroad, including Mathematical Problems in Engineering,Chinese Journal of Management Science,and Science Research Management.He published a monograph titled Research on Renewable Energy Power Policies: A Real Option Perspective in 2019 and has won many academic honors, such as the First Prize in the Essay Competition of China Financial Futures Exchange and the Excellent Paper at the Annual Conference on Financial Systems Engineering and Risk Management.