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The Pricing of Options With an Uncertain Interest Rate: A Discrete‐Time Approach1

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  • Klaus Sandmann

Abstract

The aim of this paper is to develop a model for the pricing of European options under the assumption of a stochastic interest rate in a discrete‐time context. This is accomplished by combining the well‐known binomial model for a stock with a binomial model for the spot interest rate.

Suggested Citation

  • Klaus Sandmann, 1993. "The Pricing of Options With an Uncertain Interest Rate: A Discrete‐Time Approach1," Mathematical Finance, Wiley Blackwell, vol. 3(2), pages 201-216, April.
    • Handle: RePEc:bla:mathfi:v:3:y:1993:i:2:p:201-216
    DOI: 10.1111/j.1467-9965.1993.tb00088.x
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    References listed on IDEAS

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    1. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
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    Cited by:

    1. Mondher Bellalah, 2009. "Derivatives, Risk Management & Value," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7175.
    2. Flåm, Sjur Didrik, 2007. "Option pricing by mathematical programming," Working Papers in Economics 08/07, University of Bergen, Department of Economics.

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