Forward start options under stochastic volatility and stochastic interest rates

Rehez Ahlip; Marek Rutkowski

doi:10.1142/S0219024909005166

Forward start options under stochastic volatility and stochastic interest rates

Rehez Ahlip, Marek Rutkowski

Research output: Contribution to journal › Article › peer-review

14 Citations (Scopus)

Abstract

Forward start options are examined in Heston's (Review of Financial Studies 6 (1993) 327-343) stochastic volatility model with the CIR (Econometrica 53 (1985) 385-408) stochastic interest rates. The instantaneous volatility and the instantaneous short rate are assumed to be correlated with the dynamics of stock return. The main result is an analytic formula for the price of a forward start European call option. It is derived using the probabilistic approach combined with the Fourier inversion technique, as developed in Carr and Madan (Journal of Computational Finance 2 (1999) 61-73).

Original language	English
Pages (from-to)	209-225
Number of pages	17
Journal	International Journal of Theoretical and Applied Finance
Volume	12
Issue number	2
DOIs	https://doi.org/10.1142/S0219024909005166
Publication status	Published - 2009

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title = "Forward start options under stochastic volatility and stochastic interest rates",

abstract = "Forward start options are examined in Heston's (Review of Financial Studies 6 (1993) 327-343) stochastic volatility model with the CIR (Econometrica 53 (1985) 385-408) stochastic interest rates. The instantaneous volatility and the instantaneous short rate are assumed to be correlated with the dynamics of stock return. The main result is an analytic formula for the price of a forward start European call option. It is derived using the probabilistic approach combined with the Fourier inversion technique, as developed in Carr and Madan (Journal of Computational Finance 2 (1999) 61-73).",

author = "Rehez Ahlip and Marek Rutkowski",

year = "2009",

doi = "10.1142/S0219024909005166",

language = "English",

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pages = "209--225",

journal = "International Journal of Theoretical and Applied Finance",

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AU - Ahlip, Rehez

AU - Rutkowski, Marek

PY - 2009

Y1 - 2009

N2 - Forward start options are examined in Heston's (Review of Financial Studies 6 (1993) 327-343) stochastic volatility model with the CIR (Econometrica 53 (1985) 385-408) stochastic interest rates. The instantaneous volatility and the instantaneous short rate are assumed to be correlated with the dynamics of stock return. The main result is an analytic formula for the price of a forward start European call option. It is derived using the probabilistic approach combined with the Fourier inversion technique, as developed in Carr and Madan (Journal of Computational Finance 2 (1999) 61-73).

AB - Forward start options are examined in Heston's (Review of Financial Studies 6 (1993) 327-343) stochastic volatility model with the CIR (Econometrica 53 (1985) 385-408) stochastic interest rates. The instantaneous volatility and the instantaneous short rate are assumed to be correlated with the dynamics of stock return. The main result is an analytic formula for the price of a forward start European call option. It is derived using the probabilistic approach combined with the Fourier inversion technique, as developed in Carr and Madan (Journal of Computational Finance 2 (1999) 61-73).

UR - http://handle.uws.edu.au:8081/1959.7/528849

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DO - 10.1142/S0219024909005166

M3 - Article

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VL - 12

SP - 209

EP - 225

JO - International Journal of Theoretical and Applied Finance

JF - International Journal of Theoretical and Applied Finance

IS - 2

ER -

Forward start options under stochastic volatility and stochastic interest rates

Abstract

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