# On the Heston Model with Stochastic Interest Rates

@article{Grzelak2011OnTH, title={On the Heston Model with Stochastic Interest Rates}, author={Lech A. Grzelak and Cornelis W. Oosterlee}, journal={ERN: Other Econometrics: Mathematical Methods \& Programming (Topic)}, year={2011} }

We discuss the Heston [Heston-1993] model with stochastic interest rates driven by Hull-White [Hull,White-1996] (HW) or Cox-Ingersoll-Ross [Cox, et al.-1985] (CIR) processes. A so-called volatility compensator is defined which guarantees that the Heston hybrid model with a non-zero correlation between the equity and interest rate processes is properly defined. Two different approximations of the hybrid models are presented in order to obtain the characteristic functions. These approximations…

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