12. Advanced Topics in Finance: Semi-Markov Models

  1. Jacques Janssen,
  2. Oronzio Manca and
  3. Raimondo Manca
  1. Jacques Janssen,
  2. Oronzio Manca and
  3. Raimondo Manca

Published Online: 4 APR 2013

DOI: 10.1002/9781118578339.ch12

Applied Diffusion Processes from Engineering to Finance

Applied Diffusion Processes from Engineering to Finance

How to Cite

Janssen, J., Manca, O. and Manca, R. (2013) Advanced Topics in Finance: Semi-Markov Models, in Applied Diffusion Processes from Engineering to Finance, John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118578339.ch12

Publication History

  1. Published Online: 4 APR 2013
  2. Published Print: 4 MAR 2013

ISBN Information

Print ISBN: 9781848212497

Online ISBN: 9781118578339

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Keywords:

  • homogeneous semi-Markov process (HSMP);
  • non-homogeneous semi-Markov processes (NHSMP);
  • semi-Markov option model;
  • stochastic finance

Summary

This chapter describes the homogeneous semi-Markov process (HSMP) and non-homogeneous semi-Markov processes (NHSMP). The use of semi-Markov models in stochastic finance gives the possibility to construct evaluation and pricing non-Gaussian models, both homogeneous and nonhomogeneous in time, that are better for dealing with the problems when markets are no more efficient and complete, and very useful in economic and financial times of crisis. It is also possible to incorporate new parameters such as those describing the social environment. The chapter also considers some strategic parameters of the world situation and of the considered banks or insurance companies so that the models can be used for building scenarios generators.