European Option Pricing When The Interest Rate Is Stochastic
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European Option Pricing When The Interest Rate Is Stochastic
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Author : Shu Ngai Yeung
language : en
Publisher:
Release Date : 1997
European Option Pricing When The Interest Rate Is Stochastic written by Shu Ngai Yeung and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Interest rates categories.
An Analytical Approximation For European Option Prices Under Stochastic Interest Rate Economy
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Author : Hideharu Funahashi
language : en
Publisher:
Release Date : 2015
An Analytical Approximation For European Option Prices Under Stochastic Interest Rate Economy written by Hideharu Funahashi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This paper extends the Wiener-Ito chaos expansion approach proposed by Funahashi and Kijima (2013) to an equity-interest-rate hybrid model for the pricing of European contingent claims with special emphasis on calibration to the option markets. Our model can capture the volatility skew and smile of option markets, as well as the stochastic nature of interest rates. Further, the proposed method is applicable to widely used option pricing models such as local volatility models, stochastic volatility models, and their combinations with the stochastic nature of interest rates; hence, it is suitable for practical purposes. Through numerical examples, we show that our approximation is quite accurate even for long-maturity and/or high-volatility cases.
Pricing American Options With Stochastic Interest Rates
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Author : Kaushik I. Amin
language : en
Publisher:
Release Date : 1992
Pricing American Options With Stochastic Interest Rates written by Kaushik I. Amin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with International finance categories.
A Pricing Model For American Options With Stochastic Interest Rates
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Author : Ton Vorst
language : en
Publisher:
Release Date : 2008
A Pricing Model For American Options With Stochastic Interest Rates written by Ton Vorst and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
In this paper we develop a new method to value American stock options with stochastic interest rates. We construct a binomial tree for the stock price divided by the price of the zero coupon bond that matures at the maturity date of the option. In fact, we construct a tree for the so-called forward risk adjusted measure. In each node of the tree the quotient of the stock price and bond price is constant and there are combinations of stock and bond prices for which immediate exercise is optimal and other combinations for which this is not the case. We derive for each node in the tree an analytic expression for the expected immediate exercise premium conditional on this quotient of stock and bond prices. This immediate exercise premium is added to the value that is derived from the familiar backward procedure. Both European and American option prices depend on the correlation between the interest rate process and the stock price process. It is interesting to see that with increasing correlation between the interest rate process and the stock price process, and hence a decreasing correlation between bond and stock prices, the values of European options increase, while the values of the early exercise premium decrease. For American options this might result in a non-monotonic relation between the correlation coefficient and the option price. Furthermore, there is evidence that the early exercise premium due to stochastic interest rates is much larger than established before by other researchers. Finally, we also consider the influence of the shape of the initial term structure.
Currency Option Pricing With Stochastic Interest Rates And Transaction Costs
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Author : Mariusz Tamborski
language : en
Publisher:
Release Date : 1994
Currency Option Pricing With Stochastic Interest Rates And Transaction Costs written by Mariusz Tamborski and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Currency convertibility categories.
On The Effect Of Stochastic Interest Rates On The Pricing Of European Call Options
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Author : Krister Rindell
language : en
Publisher:
Release Date : 1991
On The Effect Of Stochastic Interest Rates On The Pricing Of European Call Options written by Krister Rindell and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991 with categories.
Pricing American Options With Stochastic Interest Rates
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Author : Kaushik Ishwar Amin
language : en
Publisher:
Release Date : 1992
Pricing American Options With Stochastic Interest Rates written by Kaushik Ishwar Amin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with International finance categories.
A Simplified Discrete Time Approach For The Pricing Of Derivative Securities With Stochastic Interest Rates
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Author : Kaushik I. Amin
language : en
Publisher:
Release Date : 1990
A Simplified Discrete Time Approach For The Pricing Of Derivative Securities With Stochastic Interest Rates written by Kaushik I. Amin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990 with Futures categories.
The Potential Approach To The Term Structure Of Interest Rates And Bond Pricing And Time Changed L Vy Processes And European Option Pricing
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Author : William Lowell Anderson (Jr.)
language : en
Publisher:
Release Date : 2006
The Potential Approach To The Term Structure Of Interest Rates And Bond Pricing And Time Changed L Vy Processes And European Option Pricing written by William Lowell Anderson (Jr.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
Can Negative Interest Rates Really Affect Option Pricing Empirical Evidence From An Explicitly Solvable Stochastic Volatility Model
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Author : Maria Cristina Recchioni
language : en
Publisher:
Release Date : 2016
Can Negative Interest Rates Really Affect Option Pricing Empirical Evidence From An Explicitly Solvable Stochastic Volatility Model written by Maria Cristina Recchioni and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
The profound financial crisis generated by the collapse of Lehman Brothers and the European sovereign debt crisis in 2011 have caused negative values of government bond yields both in the U.S.A. and in the EURO area. This paper investigates whether the use of models which allow for negative interest rate can improve option pricing and implied volatility forecasting. This is done with special attention to Foreign eXchange and index options. To this end, we carried out an empirical analysis of the prices of call and put options on the U.S. S&P 500 index as well as on the Eurodollar futures using a generalization of the Heston model in the stochastic interest rate framework. Specifically, the dynamics of the option's underlying asset is described by two factors: a stochastic variance and a stochastic interest rate. The volatility is not allowed to be negative while the interest rate is. Explicit formulas for the transition probability density function and moments are derived. These formulas are used to efficiently estimate the model parameters. Three empirical analyses are illustrated. The first two show that the use of models which allow for negative interest rates can efficiently reproduce implied volatility and forecast option prices (i.e. S&P index and foreign exchange options). The last one studies how the U.S. three month government bond yield affects the U.S. S&P 500 index.