Properties of American options under a Markovian Regime Switching Model

In this article, a model under which the underlying asset follows Markov regime-switching process is considered. The economy partially observable in form of signal stochastically related to actual state economy. American option pricing problem formulated using decision (POMDP). Through three-state assumed with focus on threshold for early exercise, hold regions and its monotonicity. An extensive numerical experimental study conducted order clarify relationship between monotonicity exercising strategy sufficient conditions are obtained Jin, Dimitrov, Ni. effect confirmed. It was shown that not necessary strategy, discussion including milder presented based studies.