Analytically pricing foreign exchange options under a three-factor stochastic volatility and interest rate model: A full correlation structure

• Published in: Expert systems with applications Vol. 246; p. 123203
• Main Authors: He, Xin-Jiang, Lin, Sha
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 15.07.2024
• Subjects: Closed-form solution; Foreign exchange options; Full correlation structure; Three-factor Heston–Hull–White model; Three-factor Heston–Hull–White model; Closed-form solution; Foreign exchange options; Full correlation structure

The current literature usually ignores the dependence between the rate of exchange and two interest rates, i.e., domestic and foreign ones, for the availability of analytical solutions to foreign exchange option prices, while such settings potentially limit the performance of these models. To addres...