Forward Density Approach to European Option Under Stochastic Interest Rate

2007 ◽  
Author(s):  
Shankar Subramaniam
Keyword(s):  
Interest Rate ◽  
Stochastic Interest Rate ◽  
European Option ◽  
Stochastic Interest

European Option Pricing under Fractional Stochastic Interest Rate Model

2010 ◽  
Vol 171-172 ◽  
pp. 787-790
Author(s):  
Wen Li Huang ◽  
Gui Mei Liu ◽  
Sheng Hong Li ◽  
An Wang
Keyword(s):  
Brownian Motion ◽  
Interest Rate ◽  
Fractional Brownian Motion ◽  
Stock Price ◽  
Stochastic Interest Rate ◽  
European Option ◽  
European Option Pricing ◽  
Stochastic Interest ◽  
Pde Method ◽  
And Control

Under the assumption of stock price and interest rate obeying the stochastic differential equation driven by fractional Brownian motion, we establish the mathematical model for the financial market in fractional Brownian motion setting. Using the risk hedge technique, fractional stochastic analysis and PDE method, we obtain the general pricing formula for the European option with fractional stochastic interest rate. By choosing suitable Hurst index, we can calibrate the pricing model, so that the price can be used as the actual price of option and control the risk management

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