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European Option Pricing for a Stochastic Volatility Lévy Model with Stochastic Interest Rates
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Journal of Mathematical Finance·Volume 01 (2011)·Pages 98–108·Published 25 November 2011·DOI10.4236/jmf.2011.13013
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Abstract
We present a European option pricing when the underlying asset price dynamics is governed by a linear combination of the time-change Lévy process and a stochastic interest rate which follows the Vasicek process. We obtain an explicit formula for the European call option in term of the characteristic function of the tail probabilities.
KeywordsTime-Change Lévy ProcessStochastic Interest RateVasicek ProcessForward MeasureOption Pricing
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