Efficient Simulation for Pricing Barrier Options with Two-Factor Stochastic Volatility and Stochastic Interest Rate
Joint Authors
Source
Mathematical Problems in Engineering
Issue
Vol. 2017, Issue 2017 (31 Dec. 2017), pp.1-8, 8 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2017-11-14
Country of Publication
Egypt
No. of Pages
8
Main Subjects
Abstract EN
This paper presents an extension of the double Heston stochastic volatility model by combining Hull-White stochastic interest rates.
By the change of numeraire and quadratic exponential scheme, this paper develops a new simulation scheme for the extended model.
By combining control variates and antithetic variates, this paper provides an efficient Monte Carlo simulation algorithm for pricing barrier options.
Based on the differential evolution algorithm the extended model is calibrated to S&P 500 index options to obtain the model parameter values.
Numerical results show that the proposed simulation scheme outperforms the Euler scheme, the proposed simulation algorithm is efficient for pricing barrier options, and the extended model is flexible to fit the implied volatility surface.
American Psychological Association (APA)
Zhang, Su-mei& Jieqiong, Zhao. 2017. Efficient Simulation for Pricing Barrier Options with Two-Factor Stochastic Volatility and Stochastic Interest Rate. Mathematical Problems in Engineering،Vol. 2017, no. 2017, pp.1-8.
https://search.emarefa.net/detail/BIM-1190287
Modern Language Association (MLA)
Zhang, Su-mei& Jieqiong, Zhao. Efficient Simulation for Pricing Barrier Options with Two-Factor Stochastic Volatility and Stochastic Interest Rate. Mathematical Problems in Engineering No. 2017 (2017), pp.1-8.
https://search.emarefa.net/detail/BIM-1190287
American Medical Association (AMA)
Zhang, Su-mei& Jieqiong, Zhao. Efficient Simulation for Pricing Barrier Options with Two-Factor Stochastic Volatility and Stochastic Interest Rate. Mathematical Problems in Engineering. 2017. Vol. 2017, no. 2017, pp.1-8.
https://search.emarefa.net/detail/BIM-1190287
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1190287