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Abstract

We discuss the Heston Heston-1993 model with stochastic interest rates driven by Hull-White Hull,White-1996 HW or Cox-Ingersoll-Ross Cox, et al.-1985 CIR processes. Two projection techniques to derive affine approximations of the original hybrid models are presented. In these approximations we can prescibe a non-zero correlation structure between all underlying processes. The affine approximate models admit pricing basic derivative products by Fourier techniques Carr,Madan-1999; Fang,Oosterlee-2008, and can therefore be used for fast calibration of the hybrid model.



Item Type: MPRA Paper -

Original Title: On The Heston Model with Stochastic Interest Rates-

English Title: On The Heston Model with Stochastic Interest Rates-

Language: English-

Keywords: Heston-Hull-White; Heston-Cox-Ingersoll-Ross; equity-interest rate hybrid products; stochastic volatility; affine jump diffusion processes.-

Subjects: G - Financial Economics > G1 - General Financial MarketsF - International Economics > F3 - International FinanceG - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing-





Autor: Grzelak, Lech

Fuente: https://mpra.ub.uni-muenchen.de/24174/







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