Extension of stochastic volatility equity models with the Hull--White interest rate process
AbstractWe present an extension of stochastic volatility equity models by a stochastic Hull--White interest rate component while assuming non-zero correlations between the underlying processes. We place these systems of stochastic differential equations in the class of affine jump-diffusion--linear quadratic jump-diffusion processes so that the pricing of European products can be efficiently performed within the Fourier cosine expansion pricing framework. We compare the new stochastic volatility Sch�bel--Zhu--Hull--White hybrid model with a Heston--Hull--White model, and also apply the models to price hybrid structured derivatives that combine the equity and interest rate asset classes.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 12 (2012)
Issue (Month): 1 (July)
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Web page: http://www.tandfonline.com/RQUF20
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- Tinne Haentjens & Karel J. in 't Hout, 2011. "ADI finite difference schemes for the Heston-Hull-White PDE," Papers 1111.4087, arXiv.org.
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