An Implementation of the Hybrid-Heston-Hull-White Model

34 Pages Posted: 8 May 2009

See all articles by Joerg Kienitz

Joerg Kienitz

University of Cape Town; University of Wuppertal - Applied Mathematics

Holger Kammeyer

UC Berkeley, Department of Mathematics

Date Written: April 5, 2009

Abstract

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

Kienitz, Joerg and Kammeyer, Holger, An Implementation of the Hybrid-Heston-Hull-White Model (April 5, 2009). Available at SSRN: https://ssrn.com/abstract=1399389 or http://dx.doi.org/10.2139/ssrn.1399389

Joerg Kienitz (Contact Author)

University of Cape Town ( email )

South Africa

University of Wuppertal - Applied Mathematics ( email )

Gaußstraße 20
42097 Wuppertal
Germany

Holger Kammeyer

UC Berkeley, Department of Mathematics ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

HOME PAGE: http://math.berkeley.edu/~kammeyer/

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