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

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DOI: 10.4236/jmf.2011.13013    4,033 Downloads   9,771 Views   Citations

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.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

S. Pinkham and P. Sattayatham, "European Option Pricing for a Stochastic Volatility Lévy Model with Stochastic Interest Rates," Journal of Mathematical Finance, Vol. 1 No. 3, 2011, pp. 98-108. doi: 10.4236/jmf.2011.13013.

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