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Extension of Stochastic Volatility Models with Hull-White Interest Rate Process (2008)
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BibTeX
@MISC{Grzelak08extensionof,
author = {L. A. Grzelak and C. W. Oosterlee and S. Van Weeren},
title = {Extension of Stochastic Volatility Models with Hull-White Interest Rate Process},
year = {2008}
}
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Abstract
In recent years the financial world has focused on accurate pricing of exotic and hybrid products that are based on a combination of underlyings from different asset classes. In this paper we present an extension of the stochastic volatility models by a stochastic Hull-White interest rate component. It is our goal to include this system of stochastic differential equations in the class of affine jump diffusion- linear quadratic jump-diffusion processes (Duffie, Pan and Singleton [11], Cheng and Scaillet [8]) so that the pricing of European products can be efficiently done within the pricing framework of Carr-Madan [7].
