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The Affine Heston Model with Correlated Gaussian Interest Rates for Pricing Hybrid Derivatives
"... In this article we define a multifactor equityinterest rate hybrid model with nonzero correlation between the stock and interest rate. The equity part is modeled by the Heston model [24] and we use a Gaussian multifactor shortrate process [7; 25]. By construction, the model fits in the framewor ..."
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In this article we define a multifactor equityinterest rate hybrid model with nonzero correlation between the stock and interest rate. The equity part is modeled by the Heston model [24] and we use a Gaussian multifactor shortrate process [7; 25]. By construction, the model fits in the framework of affine diffusion processes [11] allowing fast calibration to plain vanilla options. We also provide an efficient Monte Carlo simulation scheme.
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"... Approximate solution to a hybrid model with stochastic volatility: a singularperturbation strategy ..."
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Approximate solution to a hybrid model with stochastic volatility: a singularperturbation strategy