Geodesic
Option pricing with dynamically correlated stochastic interest rate
Long Teng1 ; Matthias Ehrhardt1 ; Michael Günther1 ; Long Teng ; Matthias Ehrhardt ; Michael Günther
1Bergische Universitat Wuppertal
Acta mathematica Universitatis Comenianae, Tome 84 (2015) no. 2, pp. 179-190 
Long Teng; Matthias Ehrhardt; Michael Günther; Long Teng; Matthias Ehrhardt; Michael Günther. Option pricing with dynamically correlated stochastic interest rate. Acta mathematica Universitatis Comenianae, Tome 84 (2015) no. 2, pp. 179-190. http://geodesic.mathdoc.fr/item/AMUC_2015_84_2_a0/
@article{AMUC_2015_84_2_a0,
     author = {Long Teng and Matthias Ehrhardt and Michael G\"unther and Long Teng and Matthias Ehrhardt and Michael G\"unther},
     title = { Option pricing with dynamically correlated stochastic interest rate},
     journal = {Acta mathematica Universitatis Comenianae},
     pages = {179--190},
     year = {2015},
     volume = {84},
     number = {2},
     url = {http://geodesic.mathdoc.fr/item/AMUC_2015_84_2_a0/}
}
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Voir la notice de l'article provenant de la source Comenius University

In this work we review several option pricing models with stochastic interestrate and extend this model by incorporating local time dependent correlationbetween the underlying and the interest rate. We compare the dierence betweenusing a constant and a dynamic correlation by analyzing some numerical benchmarks.Furthermore, we conduct an experiment on tting the pricing model to themarket price. Our analysis shows that the option pricing within the Black-Scholesframework can not really be improved by incorporating stochastic interest rate evenwhen using a nonlinear correlation.