Good-deal bounds in a regime-switching diffusion market

We consider the pricing of a maturity guarantee, which is equivalent to the pricing of a European put option, in a regime-switching market model. Regime-switching market models have been empirically shown to fit long-term stockmarket data better than many other models. However, since a regime-switching market is incomplete, there is no unique price for the maturity guarantee. We extend the good-deal pricing bounds idea to the regime-switching market model. This allows us to obtain a reasonable range of prices for the maturity guarantee, by excluding those prices which imply a Sharpe Ratio which is too high. The range of prices can be used as a plausibility check on the chosen price of a maturity guarantee.