Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
4627019 | Applied Mathematics and Computation | 2015 | 16 Pages |
Abstract
In this paper, a stochastic process of Vasicek type describing the short rate is considered, where the three governing parameters {ϕ,α,σ}{ϕ,α,σ}, with ϕ for the market fitting, α for the reversion and σ for the volatility, would depend on the macro-economic condition modeled as an independent birth–death process on a finite state space. Computational algorithms are developed for evaluating the prices of European call options defined on a zero-coupon discount bond characterized by the above stochastic process. Numerical examples are provided based on real data so as to demonstrate the speed and efficiency of the proposed algorithms.
Related Topics
Physical Sciences and Engineering
Mathematics
Applied Mathematics
Authors
Jia-Ping Huang, Ushio Sumita,