Option Pricing Under Stochastic Interest Rates | Zendy

Haowen Fang | Zendy

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Option Pricing Under Stochastic Interest Rates

Author(s) -

Haowen Fang

Publication year - 2012

Publication title -

international journal of engineering and manufacturing

Language(s) - English

Resource type - Journals

eISSN - 2306-5982

pISSN - 2305-3631

DOI - 10.5815/ijem.2012.03.12

Subject(s) - vasicek model , martingale pricing , finite difference methods for option pricing , interest rate , rendleman–bartter model , martingale (probability theory) , valuation of options , rational pricing , monte carlo methods for option pricing , economics , stochastic differential equation , econometrics , short rate model , black–scholes model , mathematical economics , actuarial science , mathematics , capital asset pricing model , local martingale , finance , volatility (finance)

This paper reviews the research history of option pricing, then our model assumes that the interest rate subject to a given Vasicek stochastic differential equations, using option pricing by martingale method to study the stochastic interest rate model of European option pricing and obtain the pricing formula. Finally, we compare the differences between the standard European option pricing formulas and European option pricing formula under stochastic interest rate.

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