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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 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. |
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Language
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English
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Source (series)
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Research paper / Faculty of Applied Economics ; 2003:10
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Publication
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Antwerpen
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UA
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2003
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Volume/pages
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15 p.
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Full text (open access)
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