On Calibration and Simulation of Local Volatility Model with Stochastic Interest Rate

2019 ◽  
Author(s):  
Mingyang Xu ◽  
Robert Berec
Keyword(s):  
Interest Rate ◽  
Stochastic Interest Rate ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model ◽  
Stochastic Interest

PRICING VARIANCE SWAPS UNDER DOUBLE HESTON STOCHASTIC VOLATILITY MODEL WITH STOCHASTIC INTEREST RATE

2021 ◽  
pp. 1-17
Author(s):  
Huojun Wu ◽  
Zhaoli Jia ◽  
Shuquan Yang ◽  
Ce Liu
Keyword(s):  
Interest Rate ◽  
Closed Form ◽  
Stochastic Volatility ◽  
Stochastic Volatility Model ◽  
Characteristic Functions ◽  
Stochastic Interest Rate ◽  
Modeling Framework ◽  
Variance Swaps ◽  
Volatility Model ◽  
Stochastic Interest

In this paper, we discuss the problem of pricing discretely sampled variance swaps under a hybrid stochastic model. Our modeling framework is a combination with a double Heston stochastic volatility model and a Cox–Ingersoll–Ross stochastic interest rate process. Due to the application of the T-forward measure with the stochastic interest process, we can only obtain an efficient semi-closed form of pricing formula for variance swaps instead of a closed-form solution based on the derivation of characteristic functions. The practicality of this hybrid model is demonstrated by numerical simulations.

Libor Local Volatility Model: A New Interest Rate Smile Model

Wilmott ◽  
2016 ◽  
Vol 2016 (82) ◽  
pp. 78-87 ◽  
Author(s):  
Dingqiu Zhu ◽  
Dong Qu
Keyword(s):  
Interest Rate ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model

scholarly journals Incorporating an Interest Rate Smile in an Equity Local Volatility Model

2008 ◽  
Author(s):  
Lech A. Grzelak ◽  
Natalia Borovykh ◽  
Sacha van Weeren ◽  
Cornelis W. Oosterlee
Keyword(s):  
Interest Rate ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model

scholarly journals Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate

Complexity ◽  
2019 ◽  
Vol 2019 ◽  
pp. 1-13 ◽  
Author(s):  
Yanhong Zhong ◽  
Guohe Deng
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Stochastic Volatility ◽  
Geometric Mean ◽  
Stochastic Volatility Model ◽  
Stochastic Interest Rate ◽  
Asian Options ◽  
Proposed Model ◽  
Volatility Model ◽  
Stochastic Interest

This paper presents an extension of double Heston stochastic volatility model by incorporating stochastic interest rates and derives explicit solutions for the prices of the continuously monitored fixed and floating strike geometric Asian options. The discounted joint characteristic function of the log-asset price and its log-geometric mean value is computed by using the change of numeraire and the Fourier inversion transform technique. We also provide efficient approximated approach and analyze several effects on option prices under the proposed model. Numerical examples show that both stochastic volatility and stochastic interest rate have a significant impact on option values, particularly on the values of longer term options. The proposed model is suitable for modeling the longer time real-market changes and managing the credit risks.

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