The Pricing Formulas Of The Compound Options On Discount Bond Under The Multiple Factors Of Vasicek Model

Financial engineering is a relative systemic science, including of the designing, pricing andexchanging of the financial product and the management of risk and so on. Especially, how toprice the financial product is one of the most important problem, and people pay much attentionto it. Financial specialists and mathematician are making much research on seeking the rationalprice of the financial product.In this paper, we did it on the basis of previous research and made research on the pricingformula of compound options on discount bond. Considering the fact that volatility of discountbond is related to the volatility of interest rate, in order to being more closely to the reality life,we promoted the Vasicek random interest rate model, including changing the coefficient of themodel to be related to time t and expanding the single factor model to multiple factors model.Then, we used Ito Lemma to evaluate the random differential equation of the discount bond.Finally, we applied Girsanov Theorem and Martingale Pricing Theory to evaluate the pricingformulas of options on discount bond under the multiple factors of Vasicek random interest ratemodel, which the coefficient of this model is related to time t. We can also get the pricing for-mulas of compound options on discount bond under this model.