TITLE:
European Option Pricing for a Stochastic Volatility Lévy Model with Stochastic Interest Rates
AUTHORS:
Sarisa Pinkham, Pairote Sattayatham
KEYWORDS:
Time-Change Lévy Process, Stochastic Interest Rate, Vasicek Process, Forward Measure, Option Pricing
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.1 No.3,
November
25,
2011
ABSTRACT: We present a European option pricing when the underlying asset price dynamics is governed by a linear combination of the time-change Lévy process and a stochastic interest rate which follows the Vasicek process. We obtain an explicit formula for the European call option in term of the characteristic function of the tail probabilities.