Comment on “Option pricing under the Merton model of the short rate” by Kung and Lee [Math. Comput. Simul. 80 (2009) 378–386]

Zhenyu Cui and Don Mcleish

Mathematics and Computers in Simulation (MATCOM), 2010, vol. 81, issue 1, 1-4

Abstract: In this note, we correct the formula given in Ref. [3] for European call and put option under Merton's model of the short rate. We give a probabilistic derivation making use of the “change of numeraire” technique which is simpler and more standard.

Keywords: Stochastic interest rates; Change of numeraire; Call option price; Merton short rate model (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:81:y:2010:i:1:p:1-4

DOI: 10.1016/j.matcom.2010.06.006

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