On cross-currency models with stochastic volatility and correlated interest rates

We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full matrix of correlations. We first deal with a foreign exchange (FX) model of Heston-type, in which the domestic and foreign interest rates are generated by the short-rate process of Hull-White [HW96]. We then extend the framework by...

Efficient pricing of commodity options with early-exercise under the Ornstein–Uhlenbeck process

We analyze the efficiency properties of a numerical pricing method based on Fourier-cosine expansions for early-exercise options. We focus on variants of Schwartz’ model [20] based on a mean reverting Ornstein-Uhlenbeck process [23], which is commonly used for modeling commodity prices. This process however does not possess favorable properties...

An equity-interest rate hybrid model with stochastic volatility and the interest rate smile

We define an equity-interest rate hybrid model in which the equity part is driven by the Heston stochastic volatility [Hes93], and the interest rate (IR) is generated by the displaced-diffusion stochastic volatility Libor Market Model [AA02]. We assume a non-zero correlation between the main processes. By an appropriate change of measure the...

Efficient option pricing with multi-factor equity-interest rate hybrid models

On the Heston Model with stochastic interest rates

Incorporating an Interest Rate Smile in an Equity Local Volatility Model

Extension of stochastic volatility models with Hull-White interest rate process