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Title: Price dynamics under stochastic process switching: some extensions and an application to EMU
Authors: De Grauwe, Paul ×
Dewachter, Hans
Veestraeten, Dirk #
Issue Date: Apr-1999
Publisher: Elsevier sci ltd
Series Title: Journal of international money and finance vol:18 issue:2 pages:195-224
Abstract: In this paper we solve a particular type of stochastic process switching problem where the date of switching is fixed and known but the terminal price may depend on past prices. We derive closed-form solutions for the price dynamics of the asset before the terminal date and deduce the variance and jump components of these dynamics at the announcement. We subsequently extend the model to price dynamics prior to the announcement of the regime switch assuming that markets may have some expectations regarding the occurrence and/or the type of the regime switch. Finally, we apply the general model to discuss the implications of the chosen conversion modalities in the European Monetary Union (EMU) conversion procedure. (C) 1999 Elsevier Science Ltd. All rights reserved.
ISSN: 0261-5606
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics, Leuven
Department of Economics, Leuven - miscellaneous
× corresponding author
# (joint) last author

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