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A Hamiltonian Approach to Barrier Option Pricing Under Vasicek Model

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  • Chao Guo
  • Ning Yao

Abstract

In this paper, we study option pricing under Vasicek Model by a Hamiltonian approach. Since the interest rate changes with time, we split the time to maturity into infinite steps, and the matrix element during each step could be calculated by quantum mechanics methods. Using completeness condition, the pricing kernel and the integral expression of option price could also be derived. Numerical results of option prices as functions of underlying asset price, floating rate and regression rate are also shown.

Suggested Citation

  • Chao Guo & Ning Yao, 2023. "A Hamiltonian Approach to Barrier Option Pricing Under Vasicek Model," Papers 2307.07103, arXiv.org, revised Dec 2024.
    • Handle: RePEc:arx:papers:2307.07103
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    File URL: http://arxiv.org/pdf/2307.07103
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    Cited by:

    1. Indu Rani & Chandan Kumar Verma, 2024. "Analyzing Short-Rate Models for Efficient Bond Option Pricing: A Review," SN Operations Research Forum, Springer, vol. 5(3), pages 1-26, September.

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