An Implementation of the Hybrid-Heston-Hull-White Model
34 Pages Posted: 8 May 2009
Date Written: April 5, 2009
We consider a stochastic volatility model with stochastic interest rates for pricing (long dated) equity derivatives. The stochastic volatility is modelled using a Heston model and the short rate is modelled by an Ornstein-Uhlenbeck process which is in this context known as the Hull-White model. After summarizing the mathematical features of the model we show how to implement the model to calibrate to market data and price equity derivatives. To this end we use Fourier transform methods and Monte Carlo methods which are implemented in C .
Keywords: Heston Model, Hull-White Model, Hybrid Model, C , UML
JEL Classification: C60, C63
Suggested Citation: Suggested Citation