European Option Pricing under Stochastic Interest Rate and Non-affine Jump Diffusion Model
This paper studies the pricing problem of European options under non-affine stochas-tic volatility model with random interest rate and Poisson jump.First,perturbation method is used to approximate the characteristic function of the underlying logarithmic asset price,and the approximate analytic formula is obtained.Then,the pricing formula of European option is derived by using fast Fourier transform.Secondly,the numerical calculation is uesd to com-pare the different effects of stochastic interest rate,fixed interest rate and non-affine volatility on the price of European call options,and analyze the effects of interest rate volatility parame-ters and affine structure parameters on the price of option.The results show that both of them have positive effects on option price,and the non-affine stochastic volatility model is more flexible than the affine stochastic volatility model.
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