✦ LIBER ✦
Accounting for stochastic interest rates, stochastic volatility and a general correlation structure in the valuation of forward starting options
✍ Scribed by Alexander Van Haastrecht; Antoon Pelsser
- Publisher
- John Wiley and Sons
- Year
- 2010
- Tongue
- English
- Weight
- 366 KB
- Volume
- 31
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
factors explicitly into account for a proper valuation and risk management of these securities. The performed analysis is facilitated by deriving closed-form formulas for the valuation of forward starting options, hereby taking the stochastic volatility, stochastic interest rates as well the dependency structure between all these processes explicitly into account. The valuation framework is derived using a probabilistic approach, enabling a fast and efficient evaluation of the option price by Fourier inverting the forward starting characteristic functions.