Work

American Knock‐In Options Pricing of Mean‐Reverting Stock Model With Floating Interest Rate

Year: 2025

Type: article

Abstract: ABSTRACT Knock‐in options are a kind of exotic options that are path‐dependent. The options will automatically take effect when the price of the underlying assert reaches a specific limit price. This paper studies an American knock‐in options pricing scheme based on a mean‐reverting stock model, considering the floating interest rate under an uncertain market environment. First of all, ‐paths of uncertain differential equations are utilized to derive the pricing formulas for American call and put options. Then, the real data of the financial market are utilized to obtain the corresponding parameters using uncertain maximum likelihood estimation. Subsequently, a hypothesis test is utilized to assess the adequacy of the stock model in fitting the observed data, and several numerical algorithms are developed to validate the efficacy of the stock model.

Source: Mathematical Methods in the Applied Sciences

DOI: 10.1002/mma.11089

Authors: Lifen Jia, Haixin Wang, Xueyong Liu

Institution: Capital University of Economics and Business

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: National Natural Science Foundation of China

Award: 沪深港股市风险传导机理及智能资产配置研究