An extension of Heston's SV model to stochastic interest rates

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:354

Article; Proceedings Paper

de Frutos, Javier¹  Gaton, Victor¹ 

[1] Univ Valladolid, Inst Matemat IMUVA, Paseo Belen 7, Valladolid, Spain

关键词: Stochastic volatility;    Stochastic interest rates;    Option pricing;   

DOI  :  10.1016/j.cam.2018.09.010

来源: Elsevier

【 摘 要 】

In Heston (1993), Heston proposes a Stochastic Volatility (SV) model with constant interest rate and derives a semi-explicit valuation formula. Heston also describes, in general terms, how the model could be extended to incorporate stochastic interest rates (SIR). This paper is devoted to the construction of an extension of Heston's SV model with a particular stochastic bond model which, just increasing in one the number of parameters, allows to incorporate SIR and to derive a semi-explicit formula for option pricing. (C) 2018 Elsevier B.V. All rights reserved.

【 授权许可】

Free