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2024 | OriginalPaper | Chapter

Valuing a European Option Under the Heston Model with Interest Rate

Authors : Siham Bayad, Khalid Hilal, Abdelmajid El Hajaji

Published in: Applied Mathematics and Modelling in Finance, Marketing and Economics

Publisher: Springer Nature Switzerland

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Abstract

In this research study, we derive a closed-form pricing formula for European options with analytical solution under the Heston model with the interest rate; in order to follow two-factor model by using the short-term interest rate and the volatility of the short term rate as the two factors. Heston-Longsraff-Schwartz hybrid model is proposed. Therefore, the numerical results in this paper represented different situations of computing European call option prices than can be more close to reality.

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Title: Valuing a European Option Under the Heston Model with Interest Rate
Authors: Siham Bayad
Khalid Hilal
Abdelmajid El Hajaji
Publisher: Springer Nature Switzerland
Book: Applied Mathematics and Modelling in Finance, Marketing and Economics
Print ISBN: 978-3-031-42846-3

Electronic ISBN: 978-3-031-42847-0

Copyright Year: 2024
DOI: https://doi.org/10.1007/978-3-031-42847-0_16

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