Interest rate derivatives for the fractional Cox-Ingersoll-Ross model

Article type: Research Article

Authors: Bishwal, Jaya P.N.^{; *}

Affiliations: Department of Mathematics and Statistics, University of North Carolina at Charlotte, Charlotte, NC, USA

Correspondence: [*] Corresponding author: Jaya P.N. Bishwal, Department of Mathematics and Statistics, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, USA. Tel.: +1 704 687 0625; Fax: +1 704 687 1392; E-mail: J.Bishwal@uncc.edu.

Abstract: We obtain the bond price formula for the fractional Cox-Ingersoll-Ross model. Then we obtain option price formula for the bond. Finally we apply it to derive option price formula in fractional Heston model.

Keywords: Wick-Itô stochastic differential equation, affine models, fractional Cox-Ingersoll-Ross model, interest rate, bond price, fractional Heston model, stochastic volatility, Monte Carlo method

DOI: 10.3233/AF-220467

Journal: Algorithmic Finance, vol. 10, no. 1-2, pp. 53-66, 2023