Journal of applied mathematics & informatics

The Korean Society for Computational and Applied Mathematics (한국전산응용수학회)
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BARRIER OPTION PRICING UNDER THE VASICEK MODEL OF THE SHORT RATE

  • Sun, Yu-dong (Department of Applied Mathematics, Northwestern Polytechnical University) ;
  • Shi, Yi-min (Department of Applied Mathematics, Northwestern Polytechnical University) ;
  • Gu, Xin (Department of Applied Mathematics, Northwestern Polytechnical University)
  • Received : 2010.11.13
  • Accepted : 2011.03.10
  • Published : 2011.09.30
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Abstract

In this study, assume that the stock price obeys the stochastic differential equation driven by mixed fractional Brownian motion, and the short rate follows the Vasicek model. Then, the Black-Scholes partial differential equation is held by using fractional Ito formula. Finally, the pricing formulae of the barrier option are obtained by partial differential equation theory. The results of Black-Scholes model are generalized.

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References

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