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Abstract In this paper, we incorporate the stochastic nature of the short rate and volatility into the option pricing model. Vasicek–Heston hybrid model is proposed. This model allows for negative… Click to show full abstract
Abstract In this paper, we incorporate the stochastic nature of the short rate and volatility into the option pricing model. Vasicek–Heston hybrid model is proposed. This model allows for negative interest rate. With the technique of the numeraire change, pricing formula for European call options is derived. Finally, some numerical illustrations are given by computing European call option prices.
Keywords:
interest rate;
model;
heston;
rate;
option pricing
Journal Title: Communications in Statistics - Theory and Methods
Year Published: 2019
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Journal Title: Communications in Statistics - Theory and Methods
Year Published: 2019
Link to full text (if available)
Share on Social Media: Sign Up to like & get
recommendations!