American Options in the Heston Model With Stochastic Interest Rate
Author | : Svetlana Boyarchenko |
Publisher | : |
Total Pages | : 22 |
Release | : 2008 |
ISBN-10 | : OCLC:1290310858 |
ISBN-13 | : |
Rating | : 4/5 (58 Downloads) |
Download or read book American Options in the Heston Model With Stochastic Interest Rate written by Svetlana Boyarchenko and published by . This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the Heston model with the stochastic interest rate of the CIR type and more general models with stochastic volatility and interest rates depending on two CIR - factors. Time derivative and infinitesimal generator of the process for factors that determine the dynamics of the interest rate and/or volatility are discretized. The result is a sequence of embedded perpetual options arising in the time - discretization of a Markov - modulated Levy model. Options in this sequence are solved using an iteration method based on the Wiener - Hopf factorization. Typical shapes of the early exercise boundary are shown, and good agreement of option prices with prices calculated with the Longstaff - Schwartz method and Medvedev - Scaillet asymptotic method is demonstrated.