New formula revolutionizes stock options pricing under changing interest rates!
The researchers developed a new way to price options by considering changing interest rates. They improved the Black-Scholes formula by including stochastic interest rates. By using a method called small-disturbance asymptotics, they found a solution that combines the original formula with an adjustment term based on interest rate volatility. This new formula was tested using the Cox-Ingersoll-Ross model and showed good numerical accuracy.