Abstract
Using daily data of the Nikkei 225 index, call option prices and call money rates of the Japanese financial market,a comparison is made of the pricing performance of stock option pricing modelsunder several stochastic interest rate processes proposedby the existing term structure literature.The results show that (1) one option pricing modelunder a specific stochastic interest ratedoes not significantly outperformanother option pricing model under an alternative stochasticinterest rate, and (2) incorporating stochastic interest ratesinto stock option pricing does not contribute to the performanceimprovement of the original Black–Scholes pricing formula.
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Kim, YJ. Option Pricing under Stochastic Interest Rates: An Empirical Investigation. Asia-Pacific Financial Markets 9, 23–44 (2002). https://doi.org/10.1023/A:1021155301176
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DOI: https://doi.org/10.1023/A:1021155301176