An efficient conditional Monte Carlo method for European option pricing with stochastic volatility and stochastic interest rate

2019 ◽  
Vol 97 (3) ◽  
pp. 638-655 ◽  
Author(s):  
Yijuan Liang ◽  
Chenglong Xu
Keyword(s):  
Monte Carlo ◽  
Monte Carlo Method ◽  
Interest Rate ◽  
Option Pricing ◽  
Stochastic Volatility ◽  
Stochastic Interest Rate ◽  
European Option ◽  
European Option Pricing ◽  
Stochastic Interest ◽  
Conditional Monte Carlo

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

scholarly journals Mellin Transform Method for European Option Pricing with Hull-White Stochastic Interest Rate

2014 ◽  
Vol 2014 ◽  
pp. 1-7 ◽  
Author(s):  
Ji-Hun Yoon
Keyword(s):  
Interest Rate ◽  
Option Pricing ◽  
Interest Rates ◽  
Mellin Transform ◽  
Stochastic Dynamics ◽  
Closed Form Solution ◽  
Stochastic Interest Rate ◽  
Option Prices ◽  
European Option Pricing ◽  
Stochastic Interest

Even though interest rates fluctuate randomly in the marketplace, many option-pricing models do not fully consider their stochastic nature owing to their generally limited impact on option prices. However, stochastic dynamics in stochastic interest rates may have a significant impact on option prices as we take account of issues of maturity, hedging, or stochastic volatility. In this paper, we derive a closed form solution for European options in Black-Scholes model with stochastic interest rate using Mellin transform techniques.

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