JOURNAL OF SHANDONG UNIVERSITY(NATURAL SCIENCE) ›› 2022, Vol. 57 ›› Issue (9): 46-54.doi: 10.6040/j.issn.1671-9352.0.2020.584

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American option pricing and simulation under the mixed fractional Heston-CIR model

GUO Jing-jun, WANG Yu-bing, BAI Ya-nan*   

  1. School of Statistics, Lanzhou University of Finance and Economics, Lanzhou 730020, Gansu, China
  • Published:2022-09-15

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Abstract: In order to describe the volatility smile and long dependence of the underlying asset, a mixed fractional Heston-CIR model is constructed to describe the underlying asset price based on the fractional market theory,which replaces the Brownian motion with the linear combination of standard and fractional Brownian motion (H∈(3/4,1)). Secondly, the existence and uniqueness of solutions of stochastic differential equations under this model are discussed as well as the strong convergence of the Eolagian discretization of interest rate equation. Finally, the least-square Monte Carlo algorithm is used to simulate the American option to verify the validity of the model.

Key words: American put option, mixed fractional Brownian motion, Heston-CIR model, least-squares Monte Carlo algorithm

CLC Number: 

  • F224.7
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