European Option Under Cox-Ingersoll-Ross Model for Stochastic Interest Rate

Subramaniam, Shankar

doi:10.2139/ssrn.2053538

Abstract

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European Option Under Cox-Ingersoll-Ross Model for Stochastic Interest Rate

Shankar Subramaniam

affiliation not provided to SSRN

May 7, 2012

Abstract:
European option under local volatility and Cox-Ingersoll-Ross model of short rate is computed from one-dimensional partial differential equations: the Black-Scholes equation for option price and the forward Kolmogorov equation for probability transition density. Both the computations are verified by Monte Carlo simulations.

Number of Pages in PDF File: 18

Keywords: European option, Cox-Ingersoll-Ross model, Black-Scholes equation, Kolmogorov equation, Fokker-Planck equation, Probability transition density

JEL Classification: C00, C63, G12

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Date posted: May 7, 2012

Suggested Citation

Subramaniam, Shankar, European Option Under Cox-Ingersoll-Ross Model for Stochastic Interest Rate (May 7, 2012). Available at SSRN: http://ssrn.com/abstract=2053538 or http://dx.doi.org/10.2139/ssrn.2053538

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Shankar Subramaniam (Contact Author)

affiliation not provided to SSRN