A SEMI-ANALYTICAL PRICING FORMULA FOR EUROPEAN OPTIONS UNDER THE ROUGH HESTON-CIR MODEL

被引：3

作者：

He, Xin-Jiang ^{[1
]}

Lin, Sha ^{[2
]}

机构：

[1] Univ Wollongong, Sch Math & Appl Stat, Wollongong, NSW 2522, Australia

[2] Zhejiang Gongshang Univ, Sch Finance, Hangzhou, Zhejiang, Peoples R China

来源：

ANZIAM JOURNAL | 2019年 / 61卷 / 04期

关键词：

rough Heston-CIR model; semi-analytical; fractional Riccati equation; European options; STOCHASTIC VOLATILITY MODEL; VARIANCE;

D O I：

10.1017/S1446181120000024

中图分类号：

O29 [应用数学];

学科分类号：

070104 ;

摘要：

We combine the rough Heston model and the CIR (Cox-Ingersoll-Ross) interest rate together to form a rough Heston-CIR model, so that both the rough behaviour of the volatility and the stochastic nature of the interest rate can be captured. Despite the convoluted structure and non-Markovian property of this model, it still admits a semi-analytical pricing formula for European options, the implementation of which involves solving a fractional Riccati equation. The rough Heston-CIR model is more general, taking both the rough Heston model and the Heston-CIR model as special cases. The influence of rough volatility and stochastic interest rate is shown to be significant through numerical experiments.

引用

页码：431 / 445

页数：15

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