The Pricing of Options With an Uncertain Interest Rate: A Discrete‐Time Approach1

Klaus Sandmann

Mathematical Finance, 1993, vol. 3, issue 2, 201-216

Abstract: The aim of this paper is to develop a model for the pricing of European options under the assumption of a stochastic interest rate in a discrete‐time context. This is accomplished by combining the well‐known binomial model for a stock with a binomial model for the spot interest rate.

Date: 1993
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