RT Journal Article
SR Electronic
T1 Black-Scholes and Heston Models with Stochastic Interest Rates and Term Structure of Volatilities
JF The Journal of Derivatives
FD Institutional Investor Journals
SP jod.2019.1.078
DO 10.3905/jod.2019.1.078
A1 Alberto Bueno-Guerrero
YR 2019
UL https://pm-research.com/content/early/2019/07/05/jod.2019.1.078.abstract
AB We consider the Black-Scholes and Heston models and generalize them to stochastic interest rates and maturity-dependent volatilities. In the Black-Scholes case, we solve the extended model and provide a concrete form for the term structure of volatilities. In the Heston case, we prove that, under some conditions, the generalized model is equivalent to a hybrid model and we find semi-closed-form solutions in the Hull and White and CIR cases.TOPICS: Options, statistical methods, fixed income and structured finance