Pricing of interest rate derivatives, such as CMS spread or mid-curve options, depends on modelling the underlying single rates. For flexibility and realism, these rates are often described in the framework of stochastic volatility models. In this paper, we allow rates to be modelled within a...

In this paper, we show numerically how to calculate the price of bond options, swaps, caps and floors for Levy one-factor stochastic interest rate models via partial integro-differential equations (PIDE). These models include, in particular, Ornshtein-Uhlenbeck (1930), Vasicek (1977),...

The forward Kolmogorov ( Fokker-Planck ) partial differential equation for the transition density under forward measure is developed to value european option under stochastic interest rate and local volatility. The advantage of this approach is that the density needs to be computed just once out...

European option under local volatility and Cox-Ingersoll-Ross model of short rate is computed from one-dimensional partial differential equations: the Black-Scholes equation for option price and the forward Kolmogorov equation for probability transition density. Both the computations are...