Pricing European-Style Options in General Lévy Process with Stochastic Interest Rate

Mathematics

Shuyi Wang¹  Shenghong Li¹  Xiaoyu Tan¹ 

[1] Department of Mathematics, School of Science, Zhejiang University, Hangzhou 310058, China;

关键词: Lévy process;    stochastic interest rate;    Girsanov theorem;    option pricing;   

DOI  :  10.3390/math8050731

来源: DOAJ

【 摘 要 】

This paper extends the traditional jump-diffusion model to a comprehensive general Lévy process model with the stochastic interest rate for European-style options pricing. By using the Girsanov theorem and Itô formula, we derive the uniform formalized pricing formulas under the equivalent martingale measure. This model contains not only the traditional jump-diffusion model, such as the compound Poisson model, the renewal model, the pure-birth jump-diffusion model, but also the infinite activities Lévy model.

【 授权许可】

Unknown