| Summary: | 碩士 === 東吳大學 === 財務工程與精算數學系 === 103 === Interest rate bound options (including interest rate caps and floors) are important derivatives instruments for hedging interest rate risks. Traditionally, Black (1976) model was used for pricing interest rate derivatives. However, the constant volatility assumption of Black (1976) model is inconsistent with the real financial markets. The contribution of this thesis is developing stochastic volatility (SV) European interest rate caps/floors models, which combined the works of Black (1976) and Heston (1993). Furthermore, we integrated the frameworks of Huang et al. (1996), Black (1976) and Heston (1993) to deriving American interest rate caps/floors approximate solutions. According to the numerical analyses in Black (1976) and our SV-Black models, the stochastic volatility features will significantly influence the valuations of both European and American interest rate caps/floors. Therefore, investor will suffer from seriously model risks if they apply the traditional constant volatility Black (1976) model in pricing interest rate caps/floors.
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