Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate
This paper presents an extension of double Heston stochastic volatility model by incorporating stochastic interest rates and derives explicit solutions for the prices of the continuously monitored fixed and floating strike geometric Asian options. The discounted joint characteristic function of the...
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| Format: | Article |
| Language: | English |
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Wiley
2019-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2019/4316272 |
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| _version_ | 1832548755503579136 |
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| author | Yanhong Zhong Guohe Deng |
| author_facet | Yanhong Zhong Guohe Deng |
| author_sort | Yanhong Zhong |
| collection | DOAJ |
| description | This paper presents an extension of double Heston stochastic volatility model by incorporating stochastic interest rates and derives explicit solutions for the prices of the continuously monitored fixed and floating strike geometric Asian options. The discounted joint characteristic function of the log-asset price and its log-geometric mean value is computed by using the change of numeraire and the Fourier inversion transform technique. We also provide efficient approximated approach and analyze several effects on option prices under the proposed model. Numerical examples show that both stochastic volatility and stochastic interest rate have a significant impact on option values, particularly on the values of longer term options. The proposed model is suitable for modeling the longer time real-market changes and managing the credit risks. |
| format | Article |
| id | doaj-art-2f4dceb983d84e3683df637ab19cdd06 |
| institution | Kabale University |
| issn | 1076-2787 1099-0526 |
| language | English |
| publishDate | 2019-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj-art-2f4dceb983d84e3683df637ab19cdd062025-02-03T06:13:05ZengWileyComplexity1076-27871099-05262019-01-01201910.1155/2019/43162724316272Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest RateYanhong Zhong0Guohe Deng1College of Mathematics and Statistics, Guangxi Normal University, Guilin 541004, ChinaCollege of Mathematics and Statistics, Guangxi Normal University, Guilin 541004, ChinaThis paper presents an extension of double Heston stochastic volatility model by incorporating stochastic interest rates and derives explicit solutions for the prices of the continuously monitored fixed and floating strike geometric Asian options. The discounted joint characteristic function of the log-asset price and its log-geometric mean value is computed by using the change of numeraire and the Fourier inversion transform technique. We also provide efficient approximated approach and analyze several effects on option prices under the proposed model. Numerical examples show that both stochastic volatility and stochastic interest rate have a significant impact on option values, particularly on the values of longer term options. The proposed model is suitable for modeling the longer time real-market changes and managing the credit risks.http://dx.doi.org/10.1155/2019/4316272 |
| spellingShingle | Yanhong Zhong Guohe Deng Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate Complexity |
| title | Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate |
| title_full | Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate |
| title_fullStr | Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate |
| title_full_unstemmed | Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate |
| title_short | Geometric Asian Options Pricing under the Double Heston Stochastic Volatility Model with Stochastic Interest Rate |
| title_sort | geometric asian options pricing under the double heston stochastic volatility model with stochastic interest rate |
| url | http://dx.doi.org/10.1155/2019/4316272 |
| work_keys_str_mv | AT yanhongzhong geometricasianoptionspricingunderthedoublehestonstochasticvolatilitymodelwithstochasticinterestrate AT guohedeng geometricasianoptionspricingunderthedoublehestonstochasticvolatilitymodelwithstochasticinterestrate |