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Title
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The influence of a stochastic interest rate on the n-fold compound option
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Author
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Abstract
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| We reintroduced the idea of an n-fold compound option as a generalization of Geske's (2-fold) compound option in the same framework of constant interest rates. For the valuation of long-term financial agreements (life insurance products) this assumption is not always realistic so that. the. stochastic modelling of the interest rates might be a better approach. According to Miltersen et al. (1997), we will use the requirement of simple interest rates over a fixed finite period to be log-normal distributed. With these assumptions, closed-form solutions are determined for the n-fold compound call options written on zero-coupon bonds. A numerical illustration of the application of robust methods to interest rates is discussed. |
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Language
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English
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Source (journal)
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Theory and application of recent robust methods
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Source (book)
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International Conference on Robust Statistics (ICORS 2003), JUL 13-18, 2003, Antwerp, BELGIUM
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Publication
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2004
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ISBN
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3-7643-7060-2
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Volume/pages
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(2004)
, p. 343-353
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ISI
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000225886700030
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