FORWARD START OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES-Reference-Cited by-同舟云学术

FORWARD START OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES

Published:2009-03 Issue:02 Volume:12 Page:209-225
ISSN:0219-0249
Container-title:International Journal of Theoretical and Applied Finance
language:en
Short-container-title:Int. J. Theor. Appl. Finan.

Author:

AHLIP REHEZ¹,RUTKOWSKI MAREK²

Affiliation:

1. School of Computing and Mathematics, University of Western Sydney, Penrith South, NSW 1797, Australia

2. School of Mathematics and Statistics, University of New South Wales, Sydney, NSW 2052, Australia

Abstract

Forward start options are examined in Heston's (Review of Financial Studies6 (1993) 327–343) stochastic volatility model with the CIR (Econometrica53 (1985) 385–408) stochastic interest rates. The instantaneous volatility and the instantaneous short rate are assumed to be correlated with the dynamics of stock return. The main result is an analytic formula for the price of a forward start European call option. It is derived using the probabilistic approach combined with the Fourier inversion technique, as developed in Carr and Madan (Journal of Computational Finance2 (1999) 61–73).

Publisher

World Scientific Pub Co Pte Lt

Subject

General Economics, Econometrics and Finance,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219024909005166

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