Knock-in options of mean-reverting stock model with floating interest rate in uncertain environment

Knock-in options are a type of barrier option that become active when the value of the underlying asset exceeds a predetermined target. This paper investigates knock-in options based on the mean-reverting stock model within an uncertain environment where the interest rate is dynamic and the stock pr...

Full description

Saved in:
Bibliographic Details
Published in:International journal of general systems 2024-04, Vol.53 (3), p.331-351
Main Authors: Jia, Lifen, Li, Dongao, Guo, Fengjia, Zhang, Bowen
Format: Article
Language:English
Subjects:
floating interest rate
knock-in option
Mathematical models
Mean-reverting stock model
option pricing formula
parameter estimation
Parameters
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Knock-in options are a type of barrier option that become active when the value of the underlying asset exceeds a predetermined target. This paper investigates knock-in options based on the mean-reverting stock model within an uncertain environment where the interest rate is dynamic and the stock price follows a geometric process. We subsequently provide the price formulas for the European up-and-in call option and European down-and-in put option. Additionally, we apply real data from the financial market and employ moments estimation to derive the optimal parameters of the stock model under bullish and bearish conditions, respectively. Hypothesis testing is subsequently utilized to assess the fitting effect between the model and data. Finally, the numerical experiments are set to verify the validity of the formulas by observing the influence of parameters on the option price.
ISSN:0308-1079
1563-5104
DOI:10.1080/03081079.2023.2276703