FOREIGN EXCHANGE OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES

被引：12
|
作者：
Ahlip, Rehez [1 ]
机构：
[1] Univ Western Sydney, Sch Comp & Math, Locked Bag 1797, Penrith, NSW 1797, Australia
来源：
INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE | 2008年 / 11卷 / 03期
关键词：
Foreign exchange options; Ornstein-Uhlenbeck process; stochastic volatility;
D O I：
10.1142/S0219024908004804
中图分类号：
F8 [财政、金融];
学科分类号：
0202 ;
摘要：
In this paper, we present a stochastic volatility model with stochastic interest rates in a Foreign Exchange (FX) setting. The instantaneous volatility follows a mean-reverting Ornstein-Uhlenbeck process and is correlated with the exchange rate. The domestic and foreign interest rates are modeled by mean-reverting Ornstein-Uhlenbeck processes. The main result is an analytic formula for the price of a European call on the exchange rate. It is derived using martingale methods in arbitrage pricing of contingent claims and Fourier inversion techniques.
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页码：277 / 294
页数：18
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