Semi-Analytical Pricing of Barrier Options with Markov-Switching Liquidity and Jump Risk

This study extends analytical barrier-option pricing models by jointly incorporating Markov-switching liquidity risk, asymmetric double-exponential jump risk, and a state-dependent Heath–Jarrow–Morton interest-rate structure. The underlying stock price dynamics under imperfect liquidity are driven by a Markovian regime-switching liquidity-adjusted double-exponential jump-diffusion model, and the risk-neutral valuation is obtained through an Esscher transform. Compared with existing DEJD barrier-option, liquidity-adjusted option-pricing, and Markov-modulated stochastic-interest-rate models, the proposed models highlight the joint effects of liquidity conditions, jump risk, regime switching, and state-dependent forward rates on European-style barrier option prices. Numerical illustrations based on Monte Carlo simulation are provided to examine model implications and benchmark special cases.