Option Pricing for Pure Jump Processes with Markov Switching Compensators

The paper proposes a model for asset prices which is the exponential of a pure jump process with anN -state Markov switching compensator. This model extends that of Madan and Konikov. Such a process has a good chance of capturing all empirical stylized features of stock price dynamics. A closed form representation of its characteristic function is given. Option pricing is formulated in Fourier transform space. Joint work with Carlton Osakwe (Haskayne School of Business, University of Calgary).