We consider option pricing in a regime-switching  market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal  bounds idea to obtain ranges for the price of a derivative. As an illustration, we calculate the good-deal pricing bounds for a European call option . We examine the stability of the good-deal pricing bounds for the European call option when we change the market model's parameters . We find that the pricing bounds depend strongly on the market parameters .
We consider option pricing in a regime-switching diffusion market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal pricing bounds idea to obtain ranges for the price of a derivative. As an illustration, we calculate the good-deal pricing bounds for a European call option and we also examine the stability of these bounds when we change the generator of the Markov chain which drives the regime-switching . We find that the pricing bounds depend strongly on the choice of the generator .
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diffusion
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pricing
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the good-deal pricing bounds for the European call option
these bounds
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market model's parameters
generator of the Markov chain which drives the regime-switching
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market parameters
choice of the generator