Title
The influence of a stochastic interest rate on the n-fold compound option
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerpen :UA, [*]
Source (series)
Research paper / Faculty of Applied Economics ; 2003:10
Volume/pages
15 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
We reintroduced the idea of an n-fold compound option as a generalization of Geskes (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., we will use the requirement of simple interest rates over a fixed finite period to be log-normal distributed, instead of the continuously compounded interest rates. With these assumptions, closed-form solutions are determined for the n-fold compound call options written on zero-coupon bonds.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/cbbe22/ab64735b.pdf
Handle