European Option Pricing for a Stochastic Volatility Lévy Model with Stochastic Interest Rates

Sarisa Pinkham, Pairote Sattayatham

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DOI: 10.4236/jmf.2011.13013                

Abstract

We present a European option pricing when the underlying asset price dynamics is governed by a linear combination of the time-change Lévy process and a stochastic interest rate which follows the Vasicek process. We obtain an explicit formula for the European call option in term of the characteristic function of the tail probabilities.

Keywords

Time-Change Lévy Process, Stochastic Interest Rate, Vasicek Process, Forward Measure, Option Pricing

Conflicts of Interest

The authors declare no conflicts of interest.

References

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