Numerical Schemes for Variational Inequalities Arising in International Asset Pricing
This paper introduces a valuation model of international pricing in the presence of political risk. Shipments between countries are charged with shipping costs and the country specific production processes are modelled as diffusion processes. The political risk is modelled as a continuous time jump...
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| Veröffentlicht in: | Computational economics 2001-02, Vol.17 (1), p.43-80 |
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| creator | Hodder, James E Zariphopoulou, Thaleia Tourin, Agnes |
| description | This paper introduces a valuation model of international pricing in the presence of political risk. Shipments between countries are charged with shipping costs and the country specific production processes are modelled as diffusion processes. The political risk is modelled as a continuous time jump process that affects the drift of the returns in the politically unstable countries. The valuation model gives rise to a singular stochastic control problem that is analyzed numerically. The fundamental tools come from the theory of viscosity solutions of the associated Hamilton-Jacobi-Bellman equation which turns out to be a system of integral-differential Variational Inequalities with gradient constraints. Copyright 2001 by Kluwer Academic Publishers |
| doi_str_mv | 10.1023/A:1011278629862 |
| format | Article |
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| identifier | ISSN: 0927-7099 |
| ispartof | Computational economics, 2001-02, Vol.17 (1), p.43-80 |
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| language | eng |
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| subjects | Asset valuation Assets Consumption Costs Economic models Finance Foreign exchange rates International trade Market prices Mathematical models Partial differential equations Political risk Political stability Politics Price ceilings Pricing Purchasing power parity Regulation Risk Shipping Statistical analysis Studies Tax rates Transport costs Viscosity |
| title | Numerical Schemes for Variational Inequalities Arising in International Asset Pricing |
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